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Everyday Econometricians: Selection Neglect and Overoptimism When Learning from Others

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  • Kai Barron
  • Steffen Huck
  • Philippe Jehiel

Abstract

This study explores selection neglect in an experimental investment game where individuals can learn from others' outcomes. Experiment 1 examines aggregate-level equilibrium behavior. We find strong evidence of selection neglect and corroborate several comparative static predictions of Jehiel's (2018) model, showing that the severity of the bias is aggravated by the sophistication of other individuals and moderated when information is more correlated across individuals. Experiment 2 focuses on individual decision-making, isolating the influence of beliefs from possible confounding factors. This allows us to classify individuals according to their degree of naivety and explore the limits of, and potential remedies for, selection neglect.

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  • Kai Barron & Steffen Huck & Philippe Jehiel, 2024. "Everyday Econometricians: Selection Neglect and Overoptimism When Learning from Others," American Economic Journal: Microeconomics, American Economic Association, vol. 16(3), pages 162-198, August.
  • Handle: RePEc:aea:aejmic:v:16:y:2024:i:3:p:162-98
    DOI: 10.1257/mic.20200030
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    2. Kai Barron & Christina Gravert, 2022. "Confidence and Career Choices: An Experiment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 124(1), pages 35-68, January.
    3. Annekatrin Schrenker, 2023. "Causal Misperceptions of the Part-Time Pay Gap," Berlin School of Economics Discussion Papers 0010, Berlin School of Economics.
    4. Mira Frick & Ryota Iijima & Yuhta Ishii, 2018. "Dispersed Behavior and Perceptions in Assortative Societies," Cowles Foundation Discussion Papers 2128R2, Cowles Foundation for Research in Economics, Yale University, revised Oct 2021.
    5. Esponda, Ignacio & Vespa, Emanuel & Yuksel, Sevgi, 2024. "Mental Models and Learning: The Case of Base-Rate Neglect," University of California at San Diego, Economics Working Paper Series qt8cb387t8, Department of Economics, UC San Diego.
    6. Annekatrin Schrenker, 2023. "Causal Misperceptions of the Part-Time Pay Gap," Discussion Papers of DIW Berlin 2031, DIW Berlin, German Institute for Economic Research.
    7. Marta Serra-Garcia & Nora Szech, 2022. "The (In)Elasticity of Moral Ignorance," Management Science, INFORMS, vol. 68(7), pages 4815-4834, July.
    8. Jehiel, Philippe & Singh, Juni, 2021. "Multi-state choices with aggregate feedback on unfamiliar alternatives," Games and Economic Behavior, Elsevier, vol. 130(C), pages 1-24.
    9. Backhaus, Teresa & Schäper, Clara & Schrenker, Annekatrin, 2023. "Causal misperceptions of the part-time pay gap," Labour Economics, Elsevier, vol. 83(C).
    10. Ignacio Esponda & Emanuel Vespa & Sevgi Yuksel, 2024. "Mental Models and Learning: The Case of Base-Rate Neglect," American Economic Review, American Economic Association, vol. 114(3), pages 752-782, March.
    11. López-Pérez, Raúl & Pintér, Ágnes & Sánchez-Mangas, Rocío, 2022. "Some conditions (not) affecting selection neglect: Evidence from the lab," Journal of Economic Behavior & Organization, Elsevier, vol. 195(C), pages 140-157.
    12. Fries, Tilman & Barron, Kai, 2023. "Narrative Persuasion," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277691, Verein für Socialpolitik / German Economic Association.
    13. Kai Barron, 2021. "Belief updating: does the ‘good-news, bad-news’ asymmetry extend to purely financial domains?," Experimental Economics, Springer;Economic Science Association, vol. 24(1), pages 31-58, March.
    14. Katrin Gödker & Terrance Odean & Paul Smeets, 2023. "Disposed to Be Overconfident," CESifo Working Paper Series 10357, CESifo.
    15. Breitmoser, Yves & Schweighofer-Kodritsch, Sebastian, 2019. "Obviousness around the clock," Discussion Papers, Research Unit: Market Behavior SP II 2019-203, WZB Berlin Social Science Center.
    16. Peter Schwardmann & Egon Tripodi & Joël J. van der Weele, 2019. "Self-Persuasion: Evidence from Field Experiments at Two International Debating Competitions," CESifo Working Paper Series 7946, CESifo.
    17. Annekatrin Schrenker, 2023. "Causal Misperceptions of the Part-Time Pay Gap," Rationality and Competition Discussion Paper Series 372, CRC TRR 190 Rationality and Competition.
    18. Esponda, Ignacio & Vespa, Emanuel, 2023. "Contingent Thinking and the Sure-Thing Principle: Revisiting Classic Anomalies in the Laboratory#," University of California at San Diego, Economics Working Paper Series qt32j4d5z2, Department of Economics, UC San Diego.
    19. Mira Frick & Ryota Iijima & Yuhta Ishii, 2018. "Dispersed Behavior and Perceptions in Assortative Societies," Cowles Foundation Discussion Papers 2128R3, Cowles Foundation for Research in Economics, Yale University, revised Jun 2022.
    20. Windsteiger, Lisa, 2022. "The redistributive consequences of segregation and misperceptions," European Economic Review, Elsevier, vol. 144(C).
    21. Bolte, Lukas & Fan, Tony Q., 2024. "Motivated mislearning: The case of correlation neglect," Journal of Economic Behavior & Organization, Elsevier, vol. 217(C), pages 647-663.

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    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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