TEC (Theory) Seminar: Isabel Trevino, University of California, San Diego

Speaker

Isabel Trevino, University of California, San Diego

Title

"Biases in Information Choice and its Use: The Role of Strategic Uncertainty" (with Michal Szkup)

Abstract

We study experimentally how strategic uncertainty affects the way people choose and use information in a simple game that can be easily transformed into an individual decision task. We identify persistent overacquisition of information and an overall similar pattern of precision choices in both individual and strategic decision environments. In contrast, we find substantial overuse of private information in the strategic, but not in the individual decision setup. Moreover, we find that the overuse bias in the strategic environment is stronger in subjects who overacquire information and this relationship between biases cannot be explained by sunk-cost fallacies or popular models of bounded rationality. By disentangling forces related to the strategic environment, we argue that the overuse of information is driven by factors related to strategic belief formation and tensions in the information structure. We show that the overuse bias has negligible welfare effects, while overacquisition leads to significant welfare losses.