| Abstract: |
Evidence from social psychology suggests that agents process information about
their own ability in a biased manner. This evidence has motivated exciting
research in behavioral economics, but has also garnered critics who point out
that it is potentially consistent with standard Bayesian updating. We
implement a direct experimental test. We study a large sample of 656
undergraduate students, tracking the evolution of their beliefs about their
own relative performance on an IQ test as they receive noisy feedback from a
known data-generating process. Our design lets us repeatedly measure the
complete relevant belief distribution incentive-compatibly. We find that
subjects (1) place approximately full weight on their priors, but (2) are
asymmetric, over-weighting positive feedback relative to negative, and (3)
conservative, updating too little in response to both positive and negative
signals. These biases are substantially less pronounced in a placebo
experiment where ego is not at stake. We also find that (4) a substantial
portion of subjects are averse to receiving information about their ability,
and that (5) less confident subjects are causally more likely to be averse. We
unify these phenomena by showing that they all arise naturally in a simple
model of optimally biased Bayesian information processing. |