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Contagion of Wishful Thinking in Markets

Author

Listed:
  • Nicholas Seybert

    () (McCombs School of Business, University of Texas at Austin, Austin, Texas 78712)

  • Robert Bloomfield

    () (Johnson Graduate School of Management, Cornell University, Ithaca, New York 14853)

Abstract

Prior research provides only weak and controversial evidence that people overestimate the likelihood of desirable events (wishful thinking), but strong evidence that people bet more heavily on those events (wishful betting). Two experiments show that wishful betting contaminates beliefs in laboratory financial markets because wishful betters appear to possess more favorable information than they actually do. As a consequence, market interaction exacerbates rather than mitigates wishful thinking. This phenomenon, "contagion of wishful thinking," could be problematic in many settings where people infer others' beliefs from their behavior.

Suggested Citation

  • Nicholas Seybert & Robert Bloomfield, 2009. "Contagion of Wishful Thinking in Markets," Management Science, INFORMS, vol. 55(5), pages 738-751, May.
  • Handle: RePEc:inm:ormnsc:v:55:y:2009:i:5:p:738-751
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    File URL: http://dx.doi.org/10.1287/mnsc.1080.0973
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Koonce, Lisa & Seybert, Nick & Smith, James, 2011. "Causal reasoning in financial reporting and voluntary disclosure," Accounting, Organizations and Society, Elsevier, vol. 36(4), pages 209-225.
    2. Coussement, Kristof & De Bock, Koen W., 2013. "Customer churn prediction in the online gambling industry: The beneficial effect of ensemble learning," Journal of Business Research, Elsevier, vol. 66(9), pages 1629-1636.
    3. Mayorga, Diane & Trotman, Ken T., 2016. "The effects of a reasonable investor perspective and firm's prior disclosure policy on managers' disclosure judgments," Accounting, Organizations and Society, Elsevier, vol. 53(C), pages 50-62.

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