AME Labour Economics Seminar: Michael Thaler (UCL)

Seminar

Date: Thursday 25 May 2023

Time: 10.00 – 11.15

Location: F800

"Overinference from Weak Signals and Underinference from Strong Signals"

AME Labour Economics Seminar, at the Swedish Institute for Social Research (SOFI).

Michael Thaler from UCL presents "Overinference from Weak Signals and Underinference from Strong Signals".

This is an in-person only event.

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Abstract

We study how overreaction and underreaction to signals depend on their informativeness. While a large literature has studied belief updating in response to highly informative signals, people in important real-world settings are often faced with a steady stream of weak signals. We use a tightly controlled experiment and new empirical evidence from betting and financial markets to demonstrate that updating behavior differs meaningfully by signal strength: across domains, our consistent and robust finding is overreaction to weak signals and underreaction to strong signals. Both sets of results align well with a simple theory of cognitive imprecision about signal informativeness. Our framework and findings can help harmonize apparently contradictory results from the experimental and empirical literatures.

Theme

Last updated: May 22, 2023

Source: SOFI

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