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I Prefer Not to Know! Analyzing the Decision of Getting Information about your Ability

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  • Paulina Granados Zambrano

Abstract

The recognition that information is, most of the time, incomplete and imperfect is essential in understanding the nature of the formation of beliefs. To understand human behavior in the area of (academic) performance, the beliefs individuals sustain about their ability become crucial. Before performing a certain task, the agent never knows his/her true ability. He/she only has an ex-ante notion of his/her believed ability and the truth is only revealed ex-post. Once the true ability is known and the payoffs realized, we observe different reactions that range from disappointment to happiness. The logical question is then, who would have preferred not to know the truth? This paper deals with the information acquisition decisions of individuals who face uncertainty about their own ability. At a theoretical level (Bénabou and Tirole, 2002), it has been shown that overconfident individuals (people with beliefs about themselves higher than reality) with time inconsistent preferences have more at stake when they face the decision of learning the truth about themselves than more pessimistic agents. To test this prediction, a field experiment is designed and implemented, where students face the decision of learning, or not, their true ability before performing a test. It will be shown that overconfident students indeed more often decide not to learn their true ability.

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Bibliographic Info

Paper provided by European University Institute in its series Economics Working Papers with number ECO2012/04.

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Date of creation: 2012
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Handle: RePEc:eui:euiwps:eco2012/04

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Keywords: overconfidence; beliefs; ability; information acquisition; field experiment;

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References

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  1. Roland Benabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Wiley Blackwell, vol. 70(3), pages 489-520, 07.
  2. Richard Deaves & Erik Lüders & Guo Ying Luo, 2009. "An Experimental Test of the Impact of Overconfidence and Gender on Trading Activity," Review of Finance, European Finance Association, vol. 13(3), pages 555-575.
  3. Benabou, R. & Tirole, J., 2001. "Willpower and Personal Rules," Papers 216, Princeton, Woodrow Wilson School - Public and International Affairs.
  4. Roland Benabou & Jean Tirole, 2005. "Belief in a Just World and Redistributive Politics," NBER Working Papers 11208, National Bureau of Economic Research, Inc.
  5. Luigi Guiso & Tullio Jappelli, 2006. "Information Acquisition and Portfolio Performance," CSEF Working Papers 167, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  6. Benabou, Roland & Tirole, Jean, 2005. "Incentives and Prosocial Behavior," IZA Discussion Papers 1695, Institute for the Study of Labor (IZA).
  7. Bernard Caillaud & Jean Tirole, 2006. "Consensus building: How to persuade a group," PSE Working Papers halshs-00590459, HAL.
  8. Guiso, Luigi & Paiella, Monica, 2004. "The Role of Risk Aversion in Predicting Individual Behaviours," CEPR Discussion Papers 4591, C.E.P.R. Discussion Papers.
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  1. Weekly Roundup 170: A Curated Linkfest For The Smartest People On The Web!
    by Miguel in Simoleon Sense on 2012-03-26 03:35:54
  2. Weekly Roundup 170: A Curated Linkfest For The Smartest People On The Web!
    by Miguel in Simoleon Sense on 2012-03-26 03:35:54

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