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ONLINE – Applied Micro Workshop – Marta Kozakiewicz, “Belief-Based Utility and Signal Interpretation”

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Marta Kozakiewicz: “Belief-Based Utility and Signal Interpretation” People tend to overestimate their abilities and chances of success, even though inaccurate beliefs lead to costly mistakes. How can these beliefs persist in an environment with frequent feedback? I propose a new test of the hypothesis that people interpret favorable feedback to be more informative. Using experimental data, I provide the first causal evidence that the utility from beliefs affects one’s perception of signal informativeness. To establish causality, I adopt a matching estimator approach and construct a counterfactual outcome of a subject who observes the same signal, but the signal is not affecting his belief-based utility. I find a strong and significant effect: subjects interpret favorable signals to be more informative due to changes in belief-based utility. The results cast a new light on the origins of overconfidence and illuminate mechanisms that perpetuate it in the face of feedback.

Event details
What
  • Presentation
When Dec 04, 2020
from 12:00 to 13:30
Where Zoom URL TBA via mailing list
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