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Misperceiving the value of information in predicting the performance of others

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  • George Loewenstein

    ()

  • Don Moore

    ()

  • Roberto Weber

    ()

Abstract

Economic models typically allow for “free disposal†or “reversibility†of information, which implies non-negative value. Building on previous research on the “curse of knowledge†we explore situations where this might not be so. In three experiments, we document situations in which participants place positive value on information in attempting to predict the performance of uninformed others, even when acquiring that information diminishes their earnings. In the first experiment, a majority of participants choose to hire informed—rather than uninformed—agents, leading to lower earnings. In the second experiment, a significant number of participants pay for information—the solution to a puzzle—that hurts their ability to predict how many others will solve the puzzle. In the third experiment, we find that the effect is reduced with experience and feedback on the actual performance to be predicted. We discuss implications of our results for the role of information and informed decision making in economic situations. Copyright Economic Science Association 2006

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Bibliographic Info

Article provided by Springer in its journal Experimental Economics.

Volume (Year): 9 (2006)
Issue (Month): 3 (September)
Pages: 281-295

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Handle: RePEc:kap:expeco:v:9:y:2006:i:3:p:281-295

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Web page: http://www.springerlink.com/link.asp?id=102888

Related research

Keywords: Experiments; Information; Bias;

References

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  1. Gneezy, U. & Potters, J.J.M., 1997. "An experiment on risk taking and evaluation periods," Open Access publications from Tilburg University urn:nbn:nl:ui:12-73908, Tilburg University.
  2. Lewis, Tracy R & Sappington, David E M, 1997. "Information Management in Incentive Problems," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 796-821, August.
  3. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
  4. 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.
  5. Goldstein, Daniel G. & Gigerenzer, Gerd, 2008. "The Recognition Heuristic and the Less-Is-More Effect," Handbook of Experimental Economics Results, Elsevier.
  6. Charness, Gary & Gneezy, Uri, 2003. "Portfolio Choice and Risk Attitudes: An Experiment," University of California at Santa Barbara, Economics Working Paper Series qt7vz7w609, Department of Economics, UC Santa Barbara.
  7. Camerer, Colin & Loewenstein, George & Weber, Martin, 1989. "The Curse of Knowledge in Economic Settings: An Experimental Analysis," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1232-54, October.
  8. Loewenstein, George, 1999. "Because It Is There: The Challenge of Mountaineering . . . for Utility Theory," Kyklos, Wiley Blackwell, vol. 52(3), pages 315-43.
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Citations

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Cited by:
  1. Jacquemet, Nicolas & Koessler, Frédéric, 2013. "Using or hiding private information? An experimental study of zero-sum repeated games with incomplete information," Games and Economic Behavior, Elsevier, vol. 78(C), pages 103-120.
  2. Silvia Dominguez Martinez & Randolph Sloof & Ferdinand von Siemens, 2010. "Monitoring your Friends, not your Foes: Strategic Ignorance and the Delegation of Real Authority," Tinbergen Institute Discussion Papers 10-101/1, Tinbergen Institute.
  3. Anders Poulsen & Michael Roos, 2010. "Do People Make Strategic Commitments? Experimental Evidence on Strategic Information Avoidance," University of East Anglia Applied and Financial Economics Working Paper Series 007, School of Economics, University of East Anglia, Norwich, UK..
  4. Silvia Dominguez Martinez & Randolph Sloof & Ferdinand von Siemens, 2010. "Monitoring your Friends, not your Foes: Strategic Ignorance and the Delegation of Real Authority," Tinbergen Institute Discussion Papers 10-101/1, Tinbergen Institute.
  5. Anders U. Poulsen & Michael V. M. Roos, 2009. "Do People Make Strategic Moves? Experimental Evidence on Strategic Information Avoidance," Discussion Papers 09-06, University of Copenhagen. Department of Economics.
  6. Poulsen, Anders, 2007. "Learning to Make Strategic Moves: Experimental Evidence," MPRA Paper 10927, University Library of Munich, Germany.
  7. Madarasz, Kristof, 2008. "Information projection: model and applications," MPRA Paper 38612, University Library of Munich, Germany, revised 2011.
  8. Anders Poulsen & Jonathan Tan, 2007. "Information acquisition in the ultimatum game: An experimental study," Experimental Economics, Springer, vol. 10(4), pages 391-409, December.
  9. Grossman, Zachary & van der Weele, Joël, 2013. "Self-Image and Strategic Ignorance in Moral Dilemmas," University of California at Santa Barbara, Economics Working Paper Series qt0bp6z29t, Department of Economics, UC Santa Barbara.

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