Distrust in Experts and the Origins of Disagreement

76 Pages Posted: 4 Nov 2016 Last revised: 19 Sep 2019

See all articles by Ing-Haw Cheng

Ing-Haw Cheng

Dartmouth College - Tuck School of Business

Alice Hsiaw

Brandeis University - International Business School

Date Written: September 18, 2019

Abstract

Why do individuals interpret the same information differently? We propose that individuals follow Bayes' Rule when forming posteriors with one exception: when assessing the credibility of experts, they "double-dip" the data and use already-updated beliefs instead of their priors. Our proposed mistake predicts when individuals over- or underreact to new information, depending on the order in which they received previous signals. It explains why information that should objectively mitigate disagreement may amplify it instead. In a trading game application, traders engage in excessive speculation associated with bubbles and endogenous crashes. Our model provides a theory of the origins of disagreement: individuals disagree about both unknown states and credibility despite sharing common priors and information.

Keywords: disagreement, polarization, learning, speculation, bubbles

JEL Classification: D91, D83, G41

Suggested Citation

Cheng, Ing-Haw and Hsiaw, Alice, Distrust in Experts and the Origins of Disagreement (September 18, 2019). Tuck School of Business Working Paper No. 2864563, Available at SSRN: https://ssrn.com/abstract=2864563 or http://dx.doi.org/10.2139/ssrn.2864563

Ing-Haw Cheng (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Alice Hsiaw

Brandeis University - International Business School ( email )

Mailstop 32
Waltham, MA 02454-9110
United States

HOME PAGE: http://people.brandeis.edu/~ahsiaw/

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