IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v71y2025i6p5123-5141.html
   My bibliography  Save this article

Expectation Formation Under Uninformative Signals

Author

Listed:
  • Pascal Kieren

    (Alfred-Weber-Institute for Economics, Heidelberg University, 69115 Heidelberg, Germany)

  • Martin Weber

    (Department of Finance, University of Mannheim, 68161 Mannheim, Germany; and Centre for Economic Policy Research, London EC1V 0DX, United Kingdom)

Abstract

How do individuals process nondiagnostic information? According to Bayes’ theorem, signals that do not carry relevant information are treated as if no signal occurred. This paper provides evidence that individuals update their expectations even after observing uninformative signals. Importantly, the direction in which they update depends on the valence of the signal. Prior beliefs become more optimistic after desirable uninformative signals and more pessimistic after undesirable uninformative signals. Our results provide novel insights why individuals form and entertain false beliefs in environments in which potentially new information is easily accessible but costly to verify (e.g., online media).

Suggested Citation

  • Pascal Kieren & Martin Weber, 2025. "Expectation Formation Under Uninformative Signals," Management Science, INFORMS, vol. 71(6), pages 5123-5141, June.
    • Handle: RePEc:inm:ormnsc:v:71:y:2025:i:6:p:5123-5141
    DOI: 10.1287/mnsc.2023.03367
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.2023.03367
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.2023.03367?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:71:y:2025:i:6:p:5123-5141. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.