Belief Updating and the Demand for Information
Posted: 3 Jul 2014 Last revised: 8 Feb 2019
Date Written: September 8, 2017
How do individuals value noisy information that guides economic decisions? In our laboratory experiment, we find that individuals under-react to increasing the informativeness of a signal, thus undervalue high-quality information, and that they disproportionately prefer information that may yield certainty. Both biases appear to be mainly due to non-standard belief updating. We find that individuals differ consistently in their responsiveness to information – the extent that their beliefs move upon observing signals. Individual parameters of responsiveness to information have explanatory power in two distinct choice environments and are unrelated to proxies for mathematical aptitude.
Keywords: demand for information, belief updating, responsiveness to information, probability weighting, experimental economics
JEL Classification: D01, D03, D81, D83
Suggested Citation: Suggested Citation