False Consensus and the Role of Ambiguity in Predictions of Others' Risky Preferences
44 Pages Posted: 9 Aug 2008
Date Written: January 1, 2008
Abstract
Already in the 1930s psychologists mentioned the tendency of people to see the self as the center of social judgment. This leads to egocentrically biased judgments when assessing others' behavior. Since the first demonstration of this social projection bias in a study by Ross, Greene, and House (1977) a lot of studies followed. They show the effect in different contexts and the false consensus effect became a widely accepted phenomenon.
In this paper we analyze the false consensus effect in a financial context. In two studies, we use simple lottery questions and ask subjects to state certainty equivalents for the own person and also to predict the average certainty equivalent of other participants. We find a strong correlation between the own judgment and the prediction of others' judgments. As we use 50/50-lotteries and in addition ambiguous probabilities in our studies, we extend the scope of Gilovich (1990) to financial decisions. The false consensus effect is stronger in situations with ambiguity. We also asked participants to give an interval for the certainty equivalents, i.e. a lower bound that they think is not fallen short by more than 5% of the participants and also an upper bound which is not exceeded by more than 5%. We find that people strongly underestimate the variation in others' risk preferences.
Keywords: Risk Attitude, Ambiguity, False Consensus Effect, Prediction Error
JEL Classification: G1, D8
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
An Experimental Investigation of Age Discrimination in the Spanish Labour Market
By Peter A. Riach and Judith Rich
-
Affect, Empathy, and Regressive Mispredictions of Others’ Preferences Under Risk
By David Faro and Yuval Rottenstreich
-
An Experimental Investigation of Age Discrimination in the French Labour Market
By Peter A. Riach and Judith Rich
-
Cooperation and Competition in Intergenerational Experiments in the Field and the Laboratory
-
Age Effects and Heuristics in Decision Making
By Tibor Besedes, Cary A. Deck, ...
-
Intermittent Reinforcement and the Persistence of Behavior: Experimental Evidence
-
Cooperation, Competition, and Risk Attitudes: An Intergenerational Field and Laboratory Experiment
-
'Excess Entry, Ambiguity Seeking, and Competence: An Experimental Investigation'
By Robin M. Hogarth and Daniela Grieco
-
Graphical Techniques in Debiasing: An Exploratory Study
By S. Bhasker and A. Kumaraswamy
-
Safety First? The Role of Emotion in Safety Product Betrayal Aversion