How is Information (Under-) Valued? Evidence from Framed Field Experiments

30 Pages Posted: 18 Feb 2013

See all articles by Mitchell Hoffman

Mitchell Hoffman

University of Toronto - Rotman School of Management; National Bureau of Economic Research (NBER)

Date Written: February 9, 2013

Abstract

Rational endogenous information acquisition plays a key role in many economic models. This assumption may be violated, however, if agents are overconfident about their knowledge. In a novel field experiment, businesspeople experts made guesses about the price and quality of actual websites. They then had the opportunity to purchase information to improve their guesses. I find that experts exhibit significant overconfidence and that overconfidence is associated with a lower demand for information. On average, experts significantly underpay for information. However, overconfidence is unlikely to provide a full explanation for suboptimal information investment. Even if the value of information is adjusted to account for subjects’ overconfidence or subjects’ tendency to sometimes misuse information, subjects still underpay for information.

Suggested Citation

Hoffman, Mitchell, How is Information (Under-) Valued? Evidence from Framed Field Experiments (February 9, 2013). Available at SSRN: https://ssrn.com/abstract=2214359 or http://dx.doi.org/10.2139/ssrn.2214359

Mitchell Hoffman (Contact Author)

University of Toronto - Rotman School of Management ( email )

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National Bureau of Economic Research (NBER) ( email )

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