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Information projection: model and applications

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  • Madarasz, Kristof

Abstract

People exaggerate the extent to which their information is shared with others. This paper introduces the concept of such information projection and provides a simple but widely applicable model. The key application describes a novel agency conflict in a frictionless learning environment. When monitoring with ex post information, biased evaluators exaggerate how much experts could have known ex ante and underestimate experts on average. Experts, to defend their reputations, are too eager to base predictions on ex ante information that substitutes for the information jurors independently learn ex post and too reluctant to base predictions on ex ante information that complements the information jurors independently learn ex post. Instruments that mitigate Bayesian agency conflicts are either ineffective or directly backfire. Limiting monitoring improves efficiency. Applications to defensive medicine are discussed.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 38612.

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Date of creation: 2008
Date of revision: 2011
Handle: RePEc:pra:mprapa:38612

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Related research

Keywords: Biased beliefs Hindsight bias Misattribution Monitoring Defensive agency Defensive medicine;

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References

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  1. Loewenstein, George & O'Donoghue, Ted & Rabin, Matthew, 2002. "Projection Bias in Predicting Future Utility," Working Papers, Cornell University, Center for Analytic Economics 02-11, Cornell University, Center for Analytic Economics.
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  8. Harris, Milton & Holstrom, Bengt, 1982. "A Theory of Wage Dynamics," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 49(3), pages 315-33, July.
  9. Madarasz, Kristof, 2008. "Information projection: model and applications," MPRA Paper 38612, University Library of Munich, Germany, revised 2011.
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Cited by:
  1. Danz, David & Hüber, Frank & Kübler, Dorothea & Mechtenberg, Lydia & Schmid, Julia, 2013. "'I'll do it by myself as I knew it all along': On the failure of hindsight-biased principals to delegate optimally," Discussion Papers, Research Unit: Market Behavior SP II 2013-203, Social Science Research Center Berlin (WZB).
  2. Ran Spiegler, 2014. "Bayesian Networks and Boundedly Rational Expectations," Discussion Papers 1417, Centre for Macroeconomics (CFM).
  3. Madarasz, Kristof, 2008. "Information projection: model and applications," MPRA Paper 38612, University Library of Munich, Germany, revised 2011.
  4. Major, Iván & Kiss, Károly M., 2011. "Regulation of network industries in the European Union and in Central and Eastern Europe," 22nd European Regional ITS Conference, Budapest 2011: Innovative ICT Applications - Emerging Regulatory, Economic and Policy Issues 52194, International Telecommunications Society (ITS).

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