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The Good News-Bad News Effect: Asymmetric Processing of Objective Information about Yourself

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  • David Eil
  • Justin M. Rao
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    Abstract

    We study processing and acquisition of objective information regarding qualities that people care about, intelligence and beauty. Subjects receiving negative feedback did not respect the strength of these signals, were far less predictable in their updating behavior and exhibited an aversion to new information. In response to good news, inference conformed more closely to Bayes' Rule, both in accuracy and precision. Signal direction did not affect updating or acquisition in our neutral control. Unlike past work, our design varied direction and agreement with priors independently. The results indicate that confirmation bias is driven by direction; confirmation alone had no effect. (JEL D82, D83)

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mic.3.2.114
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    Bibliographic Info

    Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

    Volume (Year): 3 (2011)
    Issue (Month): 2 (May)
    Pages: 114-38

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    Handle: RePEc:aea:aejmic:v:3:y:2011:i:2:p:114-38

    Note: DOI: 10.1257/mic.3.2.114
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    1. repec:stl:stledp:2014-06 is not listed on IDEAS
    2. Zhang, Hanzhe, 2013. "Evolutionary justifications for non-Bayesian beliefs," Economics Letters, Elsevier, vol. 121(2), pages 198-201.
    3. Camille Cornand & Frank Heinemann, 2014. "Measuring Agents' Reaction to Private and Public Information in Games with Strategic Complementarities," Working Papers halshs-00925018, HAL.
    4. Ned Augenblick & Jesse M. Cunha & Ernesto Dal Bó & Justin M. Rao, 2012. "The Economics of Faith: Using an Apocalyptic Prophecy to Elicit Religious Beliefs in the Field," NBER Working Papers 18641, National Bureau of Economic Research, Inc.
    5. Albrecht, Konstanze & von Essen, Emma & Falk, Armin & Fliessbach, Klaus & Ranehill, Eva, 2012. "Social context and fairness perceptions: The role of status," Research Papers in Economics 2012:10, Stockholm University, Department of Economics.
    6. Aanesen, Margrethe & Czajkowski, Mikolaj & Falk-Peterson, Jannike & Hanley, Nicholas & LaRiviere, Jacob & Tinch, Dugald, 2014. "Effects of Experience, Knowledge and Signals on Willingness to Pay for a Public Good," Stirling Economics Discussion Papers 2014-04, University of Stirling, Division of Economics.
    7. Ertac, Seda, 2011. "Does self-relevance affect information processing? Experimental evidence on the response to performance and non-performance feedback," Journal of Economic Behavior & Organization, Elsevier, vol. 80(3), pages 532-545.
    8. Thornton, Rebecca L., 2012. "HIV testing, subjective beliefs and economic behavior," Journal of Development Economics, Elsevier, vol. 99(2), pages 300-313.
    9. Thomas Buser, 2014. "The Impact of Losing in a Competition on the Willingness to seek Further Challenges," Tinbergen Institute Discussion Papers 14-083/I, Tinbergen Institute.
    10. Marcel Garz, 2012. "Job Insecurity Perceptions and Media Coverage of Labor Market Policy," Journal of Labor Research, Springer, vol. 33(4), pages 528-544, December.
    11. James Andreoni & Tymofiy Mylovanov, 2012. "Diverging Opinions," American Economic Journal: Microeconomics, American Economic Association, vol. 4(1), pages 209-32, February.
    12. Garz, Marcel, 2014. "Consumption, labor income uncertainty, and economic news coverage," MPRA Paper 56076, University Library of Munich, Germany.
    13. Ron Bird & Daniel Choi & Danny Yeung, 2014. "Market uncertainty, market sentiment, and the post-earnings announcement drift," Review of Quantitative Finance and Accounting, Springer, vol. 43(1), pages 45-73, July.
    14. Czajkowski, Mikolaj & Hanley, Nicholas & LaRiviere, Jacob & Simpson, Katherine, 2014. "What is the Causal Effect of Information and Learning about a Public Good on Willingness to Pay?," Stirling Economics Discussion Papers 2014-05, University of Stirling, Division of Economics.

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