Distrust in Experts and the Origins of Disagreement

83 Pages Posted: 4 Nov 2016 Last revised: 16 Dec 2020

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: December 15, 2020

Abstract

Why do individuals interpret the same information differently? We propose that individuals form beliefs following Bayes' Rule with one exception: when assessing the credibility of experts, they double-dip the data and use already-updated beliefs instead of their priors. This "pre-screening" mechanism explains why individuals jointly disagree about states of the world and the credibility of experts, why the ordering of signals and experts affects final beliefs, and when individuals over- or underreact to new information. In a trading game, pre-screening generates excessive speculation, bubbles, and crashes. Our theory provides a micro-foundation for why individuals disagree about how to interpret the same data.

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 (December 15, 2020). 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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