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Pre-Decisional Information Acquisition: Do We Pay TooMuch for Information?

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  • Marc Oliver Rieger
  • Mei Wang
  • Daniel Hausmann

Abstract

It is a common phenomenon that people tend to acquire more information in a decision task than a rational benchmark would predict. What is the reason behind this? To answer this question we conducted an information acquisition experiment that has been carefully designed to disentangle several plausible reasons for information overpurchasing before decision-making. A within-subject experiment with a simple basic information acquisition task on an investment project, equivalent formulated lotteries, estimations of probability, and an additional option to satisfy one’s curiosity was used to test five different potential reasons. The results show that overpurchasing of information can be explained nearly entirely by systematic information-processing errors (misestimationor incorrect Bayesean updating). Other factors, such as overoptimism on the validity of new information, risk aversion, ambiguity aversion, and curiosity for (irrelevant) information, play at most a minor role. Our results imply that overinvestment in information acquisition can be mostly avoided if more detailed informationis given to decision makers on how much (or little) further information can improve the decision quality.

Suggested Citation

  • Marc Oliver Rieger & Mei Wang & Daniel Hausmann, 2020. "Pre-Decisional Information Acquisition: Do We Pay TooMuch for Information?," Working Paper Series 2020-02, University of Trier, Research Group Quantitative Finance and Risk Analysis.
  • Handle: RePEc:trr:qfrawp:202002
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    References listed on IDEAS

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    More about this item

    Keywords

    sequential information acquisition; ambiguity; Bayesian updating; financial decision-making;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G1 - Financial Economics - - General Financial Markets

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