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Information projection: model and applications

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Author Info

  • 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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File URL: http://mpra.ub.uni-muenchen.de/38612/
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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. George Loewenstein, Ted O'Donoghue and Matthew Rabin., 2000. "Projection Bias in Predicting Future Utility," Economics Working Papers E00-284, University of California at Berkeley.
  2. Vincent P. Crawford & Miguel A. Costa-Gomes & Nagore Iriberri, 2010. "Strategic Thinking," Levine's Working Paper Archive 661465000000001148, David K. Levine.
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  4. Dirk Jenter & Fadi Kanaan, 2006. "CEO Turnover and Relative Performance Evaluation," NBER Working Papers 12068, National Bureau of Economic Research, Inc.
  5. Philippe Jehiel & Frederic Koessler, 2005. "Revisiting Games of Incomplete Information with Analogy-Based Expectations," THEMA Working Papers 2005-04, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  6. Prendergast, Canice & Topel, Robert H, 1996. "Favoritism in Organizations," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 958-78, October.
  7. Milton Harris & Bengt Holmstrom, 1981. "A Theory of Wage Dynamics," Discussion Papers 488, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Biais, Bruno & Weber, Martin, 2009. "Hindsight Bias, Risk Perception and Investment Performance," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
  9. George Loewenstein & Don Moore & Roberto Weber, 2006. "Misperceiving the value of information in predicting the performance of others," Experimental Economics, Springer, vol. 9(3), pages 281-295, September.
  10. Colin F. Camerer & Teck-Hua Ho & Juin-Kuan Chong, 2004. "A Cognitive Hierarchy Model of Games," The Quarterly Journal of Economics, MIT Press, vol. 119(3), pages 861-898, August.
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Cited by:
  1. 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).
  2. David Danz & Frank Hüber & Dorothea Kübler & Lydia Mechtenberg & Julia Schmid, 2013. "‘I'll do it by myself as I knew it all along’: On the failure of hindsight-biased principals to delegate optimally," SFB 649 Discussion Papers SFB649DP2013-009, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

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