The Biases of Others: Projection Equilibrium in an Agency Setting

60 Pages Posted: 16 Apr 2018

See all articles by David Danz

David Danz

University of Pittsburgh - Department of Economics; affiliation not provided to SSRN

Kristof Madarasz

London School of Economics & Political Science (LSE)

Stephanie Wang

University of Pittsburgh

Date Written: April 2018

Abstract

We study strategic reasoning and the beliefs people form about the beliefs of others in the presence of private information. We find that while people naively project and think others have the same information as they do, they also anticipate the analogous projection of their differentially-informed opponents onto them. In turn, the typical person explicitly thinks that others form systematically biased beliefs. Specifically, our paper directly tests the model of projection equilibrium, Madarasz (2014, revised 2016), which posits a parsimonious one-to-one relationship between the partial extent to which a player projects and forms biased beliefs about the beliefs others,?, and the partial extent to which she anticipates but underestimate the same systematic bias in others' beliefs of her beliefs,?²². We find that the distribution of the partial extent to which players project onto others and the distribution of the partial extent to which they anticipate others' projection onto them is remarkably consistent with the tight link implied by the model.

JEL Classification: C9, D2, D8, D9

Suggested Citation

Danz, David N and Madarasz, Kristof and Wang, Stephanie, The Biases of Others: Projection Equilibrium in an Agency Setting (April 2018). CEPR Discussion Paper No. DP12867, Available at SSRN: https://ssrn.com/abstract=3163521

David N Danz (Contact Author)

University of Pittsburgh - Department of Economics ( email )

4901 Wesley Posvar Hall
230 South Bouquet Street
Pittsburgh, PA 15260
United States

affiliation not provided to SSRN

Kristof Madarasz

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Stephanie Wang

University of Pittsburgh ( email )

135 N Bellefield Ave
Pittsburgh, PA 15260
United States

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