Information Characteristics and Errors in Expectations: Experimental Evidence

Antoniou, C.; Harrison, G.W.; Lau, M.I.; Read, D.

doi:10.1017/s0022109017000035

Information Characteristics and Errors in Expectations: Experimental Evidence

Antoniou, C.; Harrison, G.W.; Lau, M.I.; Read, D.

Authors

C. Antoniou

G.W. Harrison

Professor Morten Lau m.i.lau@durham.ac.uk
Professor

D. Read

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.

Citation

Antoniou, C., Harrison, G., Lau, M., & Read, D. (2017). Information Characteristics and Errors in Expectations: Experimental Evidence. Journal of Financial and Quantitative Analysis, 52(2), 737-750. https://doi.org/10.1017/s0022109017000035

Journal Article Type	Article
Acceptance Date	Jul 20, 2015
Online Publication Date	Mar 8, 2017
Publication Date	Apr 1, 2017
Deposit Date	Sep 3, 2015
Publicly Available Date	Sep 7, 2015
Journal	Journal of Financial and Quantitative Analysis
Print ISSN	0022-1090
Electronic ISSN	1756-6916
Publisher	Cambridge University Press
Peer Reviewed	Peer Reviewed
Volume	52
Issue	2
Pages	737-750
DOI	https://doi.org/10.1017/s0022109017000035
Public URL	https://durham-repository.worktribe.com/output/1432371

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Copyright 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