Ownership, Learning, and Beliefs

56 Pages Posted: 17 Oct 2019 Last revised: 12 Jun 2020

See all articles by Samuel M. Hartzmark

Samuel M. Hartzmark

University of Chicago - Booth School of Business

Samuel Hirshman

University of Chicago - Booth School of Business

Alex Imas

University of Chicago - Booth School of Business

Date Written: October 6, 2019

Abstract

Abstract We examine how owning a good affects learning and beliefs about its quality. We show that people have more extreme reactions to information about a good that they own compared to the same information about a non-owned good: ownership causes more optimistic beliefs after receiving a positive signal and more pessimistic beliefs after receiving a negative signal. Comparing learning to normative benchmarks reveals that people over-extrapolate from signals about goods that they own, which leads to an overreaction to information; in contrast, learning is close to Bayesian for non-owned goods. We provide direct evidence that this effect is driven by ownership channeling greater attention towards associated information, which leads people to overweight recent signals when forming beliefs. The relationship between ownership and beliefs has testable implications for trade and market expectations. In line with these predictions, we show that the endowment effect doubles in response to positive information and disappears with negative information, and demonstrate a significant relationship between ownership and over-extrapolation in survey data about stock market expectations.

Keywords: biased beliefs, attention, ownership, attention, behavioral economics, learning, extrapolation

JEL Classification: D9, D12, C93

Suggested Citation

Hartzmark, Samuel M. and Hirshman, Samuel and Imas, Alex, Ownership, Learning, and Beliefs (October 6, 2019). 10th Miami Behavioral Finance Conference, Available at SSRN: https://ssrn.com/abstract=3465246 or http://dx.doi.org/10.2139/ssrn.3465246

Samuel M. Hartzmark (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Samuel Hirshman

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Alex Imas

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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