Information Characteristics and Errors in Expectations: Experimental Evidence

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

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