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How Do Expectations Affect Learning About Fundamentals? Some Experimental Evidence

Author

Listed:
  • Kieran Marray

    (Tinbergen Institute
    Institute for New Economic Thinking at the Oxford Martin School, University of Oxford)

  • Nikhil Krishna

    (Trinity College, University of Oxford)

  • Jarel Tang

    (The Queen's College, University of Oxford)

Abstract

We test how individuals with incorrect beliefs about their ability learn about an external parameter (`fundamental') when they cannot separately identify the effects of their ability, actions, and the parameter on their output. Heidhues et al. (2018) argue that learning makes overconfident individuals worse off as their beliefs about the fundamental get less accurate, causing them to take worse actions. In our experiment, subjects take incorrectly-marked tests, and we measure how they learn about the marker's accuracy over time. Overconfident subjects put in less effort, and their beliefs about the marker's accuracy got worse, as they learnt. Beliefs about the proportion of correct answers marked as correct fell by 0.05 over the experiment. We find no effect in underconfident subjects.

Suggested Citation

  • Kieran Marray & Nikhil Krishna & Jarel Tang, 2020. "How Do Expectations Affect Learning About Fundamentals? Some Experimental Evidence," Papers 2002.07229, arXiv.org, revised Jul 2021.
    • Handle: RePEc:arx:papers:2002.07229
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    References listed on IDEAS

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    1. Lex Borghans & Huub Meijers & Bas Ter Weel, 2008. "The Role Of Noncognitive Skills In Explaining Cognitive Test Scores," Economic Inquiry, Western Economic Association International, vol. 46(1), pages 2-12, January.
    2. Hoffman, Mitchell & Burks, Stephen V., 2017. "Worker Overconfidence: Field Evidence and Implications for Employee Turnover and Returns from Training," IZA Discussion Papers 10794, Institute of Labor Economics (IZA).
    3. Carmit Segal, 2012. "Working When No One Is Watching: Motivation, Test Scores, and Economic Success," Management Science, INFORMS, vol. 58(8), pages 1438-1457, August.
    4. Sandra Ludwig & Julia Nafziger, 2011. "Beliefs about overconfidence," Theory and Decision, Springer, vol. 70(4), pages 475-500, April.
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