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Misperceiving the value of information in predicting the performance of others

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Author Info
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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File URL: http://hdl.handle.net/10.1007/s10683-006-9128-y
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Publisher 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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Related research
Keywords: Experiments; Information; Bias;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Dirk Engelmann & Martin Strobel, 2004. "The False Consensus Effect: Deconstruction and Reconstruction of an Anomaly," CERGE-EI Working Papers wp233, The Center for Economic Research and Graduate Education - Economic Institute, Prague. [Downloadable!]
  2. Loewenstein, George, 1999. "Because It Is There: The Challenge of Mountaineering . . . for Utility Theory," Kyklos, Blackwell Publishing, vol. 52(3), pages 315-43.
  3. 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.
  4. Babcock, Linda & Loewenstein, George, 1997. "Explaining Bargaining Impasse: The Role of Self-Serving Biases," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 109-26, Winter. [Downloadable!] (restricted)
  5. Gneezy, Uri & Potters, Jan, 1997. "An Experiment on Risk Taking and Evaluation Periods," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 631-45, May.
  6. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Anders Poulsen & Jonathan Tan, 2007. "Information acquisition in the ultimatum game: An experimental study," Experimental Economics, Springer, vol. 10(4), pages 391-409, December. [Downloadable!] (restricted)
  2. Poulsen, Anders, 2007. "Learning to Make Strategic Moves: Experimental Evidence," MPRA Paper 10927, University Library of Munich, Germany. [Downloadable!]
  3. 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. [Downloadable!]
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