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Experimental Economics

, Volume 22, Issue 2, pp 369–395 | Cite as

Good news and bad news are still news: experimental evidence on belief updating

  • Alexander CouttsEmail author
Original Paper

Abstract

Bayesian updating remains the benchmark for dynamic modeling under uncertainty within economics. Recent theory and evidence suggest individuals may process information asymmetrically when it relates to personal characteristics or future life outcomes, with good news receiving more weight than bad news. I examine information processing across a broad set of contexts: (1) ego relevant, (2) financially relevant, and (3) non value relevant. In the first two cases, information about outcomes is valenced, containing either good or bad news. In the third case, information is value neutral. In contrast to a number of previous studies I do not find differences in belief updating across valenced and value neutral settings. Updating across all contexts is asymmetric and conservative: the former is influenced by sequences of signals received, a new variation of confirmation bias, while the latter is driven by non-updates. Despite this, posteriors are well approximated by those calculated using Bayes’ rule. Most importantly these patterns are present across all contexts, cautioning against the interpretation of asymmetric updating or other deviations from Bayes’ rule as being motivated by psychological biases.

Keywords

Beliefs Bayes’ rule Asymmetric belief updating Conservatism Overconfidence 

JEL Classification

C91 D83 D84 

Notes

Acknowledgements

This research has been generously supported by a Grant from the Russell Sage Foundation. I am grateful to the editor and two anonymous referees for a host of constructive comments. I am heavily indebted to my advisor David Cesarini for numerous discussions and comments. I am grateful for helpful comments from Hunt Allcott, Kai Barron, Thomas Buser, Colin Camerer, Andrew Demers, David Eil, Guillaume Fréchette, Nicole Hildebrandt, Elliot Lipnowski, David Low, Amnon Maltz, Markus Möbius, Joseph Mullins, Giorgia Romagnoli, Tanya Rosenblat, Andrew Schotter, Emilia Soldani, Tobias Salz, Séverine Toussaert, Joël van der Weele, Christopher Woolnough, Sevgi Yuksel, as well as seminar participants at NYU, the 2015 European ESA Meeeting, the 2016 ASFEE meeting, Games 2016, and THEEM 2017. All errors are my own.

Supplementary material

10683_2018_9572_MOESM1_ESM.pdf (535 kb)
Supplementary material 1 (pdf 534 KB)

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Copyright information

© Economic Science Association 2018

Authors and Affiliations

  1. 1.Nova School of Business and EconomicsUniversidade NOVA de LisboaLisbonPortugal

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