American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Everyday Econometricians: Selection Neglect and Overoptimism When Learning from Others
American Economic Journal: Microeconomics
vol. 16,
no. 3, August 2024
(pp. 162–98)
Abstract
This study explores selection neglect in an experimental investment game where individuals can learn from others' outcomes. Experiment 1 examines aggregate-level equilibrium behavior. We find strong evidence of selection neglect and corroborate several comparative static predictions of Jehiel's (2018) model, showing that the severity of the bias is aggravated by the sophistication of other individuals and moderated when information is more correlated across individuals. Experiment 2 focuses on individual decision-making, isolating the influence of beliefs from possible confounding factors. This allows us to classify individuals according to their degree of naivety and explore the limits of, and potential remedies for, selection neglect.Citation
Barron, Kai, Steffen Huck, and Philippe Jehiel. 2024. "Everyday Econometricians: Selection Neglect and Overoptimism When Learning from Others." American Economic Journal: Microeconomics, 16 (3): 162–98. DOI: 10.1257/mic.20200030Additional Materials
JEL Classification
- C91 Design of Experiments: Laboratory, Individual
- D12 Consumer Economics: Empirical Analysis
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
- G41 Behavioral Finance: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets [Neurofinance]
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