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Paying for confidence: An experimental study of the demand for non-instrumental information

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  • Eliaz, Kfir
  • Schotter, Andrew

Abstract

This paper presents experimental evidence that when individuals are about to make a given decision under risk, they are willing to pay for information on the likelihood that this decision is ex-post optimal, even if this information will not affect their decision. Our findings suggest that this demand for non-instrumental information is caused by what we refer to as a "confidence effect": the desire to increase one's posterior belief by ruling out "bad news", even when such news would have no effect on one's decision. We conduct various treatments to show that our subjects' behavior is not likely to be caused by an intrinsic preference for information, failure of backward induction or an attempt to minimize thinking costs.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 70 (2010)
Issue (Month): 2 (November)
Pages: 304-324

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Handle: RePEc:eee:gamebe:v:70:y:2010:i:2:p:304-324

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Web page: http://www.elsevier.com/locate/inca/622836

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  1. Jonathan Parker & Markus K Brunnermeier, 2002. "Optimal Expectations," FMG Discussion Papers dp434, Financial Markets Group.
  2. Kreps, David M & Porteus, Evan L, 1978. "Temporal Resolution of Uncertainty and Dynamic Choice Theory," Econometrica, Econometric Society, vol. 46(1), pages 185-200, January.
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  4. Botond Kdszegi, 2006. "Emotional Agency," The Quarterly Journal of Economics, MIT Press, vol. 121(1), pages 121-155, 02.
  5. Eliaz, Kfir & Spiegler, Ran, 2006. "Can anticipatory feelings explain anomalous choices of information sources?," Games and Economic Behavior, Elsevier, vol. 56(1), pages 87-104, July.
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  7. Simon Grant & Atsushi Kajii & Ben Polak, 2000. "Temporal Resolution of Uncertainty and Recursive Non-Expected Utility Models," Econometrica, Econometric Society, vol. 68(2), pages 425-434, March.
  8. Celen, Bogachan & Hyndman, Kyle, 2006. "Endogenous Network Formation In the Laboratory," MPRA Paper 1440, University Library of Munich, Germany.
  9. Scott, Robert C & Horvath, Philip A, 1980. " On the Direction of Preference for Moments of Higher Order Than the Variance," Journal of Finance, American Finance Association, vol. 35(4), pages 915-19, September.
  10. Andrew Caplin & John Leahy, 2001. "Psychological Expected Utility Theory And Anticipatory Feelings," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 55-79, February.
  11. Grant, S & Kajii, A & Polak, B, 1997. "Intrinsic Preference for Information," Papers 323, Australian National University - Department of Economics.
  12. Dorothea K¸bler & Georg Weizs”cker, 2004. "Limited Depth of Reasoning and Failure of Cascade Formation in the Laboratory," Review of Economic Studies, Wiley Blackwell, vol. 71(2), pages 425-441, 04.
  13. Ortoleva, Pietro, 2008. "The Price of Flexibility: Towards a Theory of Thinking Aversion," MPRA Paper 12242, University Library of Munich, Germany.
  14. Kfir Eliaz & Andrew Schotter, 2007. "Experimental Testing of Intrinsic Preferences for NonInstrumental Information," American Economic Review, American Economic Association, vol. 97(2), pages 166-169, May.
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Cited by:
  1. Markus Mobius & Muriel Niederle & Paul Niehaus & Tanya S. Rosenblat, 2011. "Managing self-confidence: theory and experimental evidence," Working Papers 11-14, Federal Reserve Bank of Boston.

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