Misperceiving the value of information in predicting the performance of others
Economic models typically allow for â€œfree disposalâ€ or â€œreversibilityâ€ of information, which implies non-negative value. Building on previous research on the â€œcurse of knowledgeâ€ we explore situations where this might not be so. In three experiments, we document situations in which participants place positive value on information in attempting to predict the performance of uninformed others, even when acquiring that information diminishes their earnings. In the first experiment, a majority of participants choose to hire informedâ€”rather than uninformedâ€”agents, leading to lower earnings. In the second experiment, a significant number of participants pay for informationâ€”the solution to a puzzleâ€”that hurts their ability to predict how many others will solve the puzzle. In the third experiment, we find that the effect is reduced with experience and feedback on the actual performance to be predicted. We discuss implications of our results for the role of information and informed decision making in economic situations. Copyright Economic Science Association 2006
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