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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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    File URL: http://www.aeaweb.org/aej/mic/data/2010-0077_data.zip
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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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    Web page: http://www.aeaweb.org/aej-micro
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    References

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    1. Akerlof, George A & Dickens, William T, 1982. "The Economic Consequences of Cognitive Dissonance," American Economic Review, American Economic Association, vol. 72(3), pages 307-19, June.
    2. Grether, David M, 1980. "Bayes Rule as a Descriptive Model: The Representativeness Heuristic," The Quarterly Journal of Economics, MIT Press, vol. 95(3), pages 537-57, November.
    3. Carrillo, Juan D & Mariotti, Thomas, 2000. "Strategic Ignorance as a Self-Disciplining Device," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 529-44, July.
    4. Babcock, Linda & Wang, Xianghong & Lowenstein, George, 1996. "Choosing the Wrong Pond: Social Comparisons in Negotiations That Reflect a Self-Serving Bias," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 1-19, February.
    5. Linda Babcock & George Loewenstein, 1997. "Explaining Bargaining Impasse: The Role of Self-Serving Biases," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 109-126, Winter.
    6. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
    7. Raymond Fisman & Sheena S. Iyengar & Emir Kamenica & Itamar Simonson, 2006. "Gender Differences in Mate Selection: Evidence from a Speed Dating Experiment," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 673-697, May.
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    Cited by:
    1. 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.
    2. 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.
    3. James Andreoni & Tymofiy Mylovanov, 2012. "Diverging Opinions," American Economic Journal: Microeconomics, American Economic Association, vol. 4(1), pages 209-32, February.
    4. Thornton, Rebecca L., 2012. "HIV testing, subjective beliefs and economic behavior," Journal of Development Economics, Elsevier, vol. 99(2), pages 300-313.
    5. 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.
    6. Zhang, Hanzhe, 2013. "Evolutionary justifications for non-Bayesian beliefs," Economics Letters, Elsevier, vol. 121(2), pages 198-201.

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