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Biased beliefs and imperfect information

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Proto, Eugenio and Sgroi, Daniel (2017) Biased beliefs and imperfect information. Journal of Economic Behaviour and Organization, 136 . pp. 186-202. doi:10.1016/j.jebo.2017.01.020

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Official URL: http://dx.doi.org/10.1016/j.jebo.2017.01.020

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Abstract

We perform an experiment designed to assess the accuracy of beliefs about characteristics and decisions. Subjects are asked to declare beliefs typically formed through real world experiences. They are then asked to report beliefs concerning other individuals from the same environment. We test two main hypotheses: (i) whether for items not perfectly observable, individuals suffer from some type of biased beliefs; (ii) whether this bias is reduced when information is more readily available. We find a powerful and ubiquitous bias in perceptions that is “self-centered” in the sense that those at extremes tend to perceive themselves as closer to the middle of the distribution than is the case. This bias does not completely disappear when the information is more readily available. We present evidence from our experiment that limited attention and self-serving deception can provide explanations for this bias and present important economic applications.

Item Type: Journal Article
Subjects: H Social Sciences > HF Commerce
Divisions: Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH): Consumer behavior --Psychological aspects., Equilibrium (Economics), Decision making -- Economic aspects, Economics -- Psychological aspects, Bias (Psychology)
Journal or Publication Title: Journal of Economic Behaviour and Organization
Publisher: Pergamon Press
ISSN: 0361-3682
Official Date: April 2017
Dates:
DateEvent
April 2017Published
20 February 2017Available
29 January 2017Accepted
Volume: 136
Page Range: pp. 186-202
DOI: 10.1016/j.jebo.2017.01.020
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Restricted or Subscription Access
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