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Motivated Belief Updating and Rationalization of Information

Author

Listed:
  • Drobner, Christoph

    (Technical University of Munich)

  • Goerg, Sebastian J.

    (Technische Universität München)

Abstract

We study belief updating about relative performance in an ego-relevant task. Manipulating the perceived ego-relevance of the task, we show that subjects update their beliefs optimistically because they derive direct utility flows from holding positive beliefs. This finding provides a behavioral explanation why and how overconfidence can evolve in the presence of objective information. Moreover, we document that subjects, who received more bad signals, downplay the ego-relevance of the task. Taken together, these findings suggest that subjects use two alternative strategies to protect their ego when presented with objective information.

Suggested Citation

  • Drobner, Christoph & Goerg, Sebastian J., 2022. "Motivated Belief Updating and Rationalization of Information," IZA Discussion Papers 15682, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp15682
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    Cited by:

    1. Jeanne Hagenbach & Charlotte Saucet, 2024. "Motivated Skepticism," SciencePo Working papers Main hal-03770685, HAL.
    2. Jeanne Hagenbach & Charlotte Saucet, 2024. "Motivated Skepticism," Working Papers hal-03770685, HAL.
    3. Alexander Coutts & Boon Han Koh & Zahra Murad, 2024. "The signals we give: Performance feedback, gender, and competition," Working Papers in Economics & Finance 2024-02, University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group.
    4. Jeanne Hagenbach & Charlotte Saucet, 2024. "Motivated Skepticism," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-03770685, HAL.
    5. Charlotte Cordes & Jana Friedrichsen & Simeon Schudy, 2023. "Motivated Procrastination," Rationality and Competition Discussion Paper Series 471, CRC TRR 190 Rationality and Competition.
    6. Castagnetti, Alessandro & Schmacker, Renke, 2022. "Protecting the ego: Motivated information selection and updating," European Economic Review, Elsevier, vol. 142(C).
    7. Cavalan, Quentin & de Gardelle, Vincent & Vergnaud, Jean-Christophe, 2022. "I did most of the work! Three sources of bias in bargaining with joint production," Journal of Economic Psychology, Elsevier, vol. 93(C).
    8. Samir Huseynov, 2023. "ChatGPT and the Labor Market: Unraveling the Effect of AI Discussions on Students' Earnings Expectations," Papers 2305.11900, arXiv.org, revised Aug 2023.

    More about this item

    Keywords

    motivated beliefs; optimistic belief updating; overconfidence; direct belief utility; Bayes' rule; ex-post rationalization;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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