Belief Updating and the Demand for Information

Posted: 3 Jul 2014 Last revised: 6 Feb 2018

Sandro Ambuehl

University of Toronto - Joseph L. Rotman School of Management - Business Economics; University of Toronto at Scarborough - Division of Management

Shengwu Li

Harvard University - Society of Fellows

Date Written: September 8, 2017

Abstract

How do individuals value noisy information that guides economic decisions? In our laboratory experiment, we find that individuals under-react to increasing the informativeness of a signal, thus undervalue high-quality information, and that they disproportionately prefer information that may yield certainty. Both biases appear to be mainly due to non-standard belief updating. We find that individuals differ consistently in their responsiveness to information – the extent that their beliefs move upon observing signals. Individual parameters of responsiveness to information have explanatory power in two distinct choice environments and are unrelated to proxies for mathematical aptitude.

Keywords: demand for information, belief updating, responsiveness to information, probability weighting, experimental economics

JEL Classification: D01, D03, D81, D83

Suggested Citation

Ambuehl, Sandro and Li, Shengwu, Belief Updating and the Demand for Information (September 8, 2017). Available at SSRN: https://ssrn.com/abstract=2461904 or http://dx.doi.org/10.2139/ssrn.2461904

Sandro Ambuehl

University of Toronto - Joseph L. Rotman School of Management - Business Economics ( email )

Toronto, Ontario M5S 3E6
Canada

HOME PAGE: http://https://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Ambuehl

University of Toronto at Scarborough - Division of Management ( email )

1265 Military Trial
Scarborough, Ontario M1C 1A4
Canada

Shengwu Li (Contact Author)

Harvard University - Society of Fellows ( email )

Cambridge, MA
United States

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