Journal of Risk and Uncertainty

, Volume 38, Issue 2, pp 95–115 | Cite as

The ostrich effect: Selective attention to information

  • Niklas Karlsson
  • George LoewensteinEmail author
  • Duane Seppi


We develop and test a model which links information acquisition decisions to the hedonic utility of information. Acquiring and attending to information increases the psychological impact of information (an impact effect), increases the speed of adjustment for a utility reference-point (a reference-point updating effect), and affects the degree of risk aversion towards randomness in news (a risk aversion effect). Given plausible parameter values, the model predicts asymmetric preferences for the timing of resolution of uncertainty: Individuals should monitor and attend to information more actively given preliminary good news but “put their heads in the sand” by avoiding additional information given adverse prior news. We test for such an “ostrich effect” in a finance context, examining the account monitoring behavior of Scandinavian and American investors in two datasets. In both datasets, investors monitor their portfolios more frequently in rising markets than when markets are flat or falling.


Selective exposure Attention Investor behavior 


D81 D83 



We thank the Swedish Foundation for International Cooperation in Research and Higher Education (STINT) and the Bank of Sweden Tercentenary Foundation (grant K2001-0306) for supporting Karlsson and Loewenstein’s collaboration, Bjorn Andenas of the DnB Norway group, SEB, and the Swedish Premium Pension Fund for providing data. We are very grateful to Daniel McDonald for able research assistance. We thank Kip Viscusi (editor), two anonymous referees, and also On Amir, Nick Barberis, Roland Benabou, Stefano DellaVigna, John Griffin, Gur Huberman, John Leahy, Robert Shiller, Peter Thompson, Jason Zweig and seminar participants at the 2004 Yale International Center for Finance Behavioral Science Conference and at Case Western University for comments and suggestions.


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Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  • Niklas Karlsson
    • 1
  • George Loewenstein
    • 2
    Email author
  • Duane Seppi
    • 3
  1. 1.Health Economics and Outcomes Research, AstraZenecaMölndalSweden
  2. 2.Department of Social & Decision SciencesCarnegie Mellon UniversityPittsburghUSA
  3. 3.Tepper School of BusinessCarnegie Mellon UniversityPittsburghUSA

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