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Everyday Econometricians: Selection Neglect and Overoptimism When Learning from Others

By: Contributor(s): Material type: TextTextPublication details: American Economic Journal: Microeconomics; 2024Description: 162-198ISSN:
  • 1945-7669
Subject(s): Online resources: Summary: 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.
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Article Index Article Index Dr VKRV Rao Library Vol. 16, No. 3 Not for loan AI453

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.

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