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Information characteristics and errors in expectations : experimental evidence.

Antoniou, C. and Harrison, G. W. and Lau, M. I. and Read, D. (2017) 'Information characteristics and errors in expectations : experimental evidence.', Journal of financial and quantitative analysis., 52 (2). pp. 737-750.

Abstract

We design an experiment to test the hypothesis that, in violation of Bayes’ rule, some people respond more forcefully to the strength of information than to its weight. We provide incentives to motivate effort, use naturally occurring information, and control for risk attitude. We find that the strength–weight bias affects expectations but that its magnitude is significantly lower than originally reported. Controls for nonlinear utility further reduce the bias. Our results suggest that incentive compatibility and controls for risk attitude considerably affect inferences on errors in expectations.

Item Type:Article
Full text:(AM) Accepted Manuscript
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Status:Peer-reviewed
Publisher Web site:https://doi.org/10.1017/s0022109017000035
Publisher statement:This article has been published in a revised form in Journal of Financial and Quantitative Analysis https://doi.org/10.1017/s0022109017000035. This version is free to view and download for private research and study only. Not for re-distribution, re-sale or use in derivative works. © Michael G. Foster School of Business, University of Washington 2017
Record Created:07 Sep 2015 10:05
Last Modified:11 May 2017 15:37

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