Journal Article

Information Projection: Model and Applications

Kristóf Madarász

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 79, issue 3, pages 961-985
Published in print July 2012 | ISSN: 0034-6527
Published online December 2011 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1093/restud/rdr044
Information Projection: Model and Applications

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  • Information, Knowledge, and Uncertainy
  • Microeconomics
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People exaggerate the extent to which their information is shared with others. This paper introduces the concept of such information projection and provides a simple but widely applicable model. The key application describes a novel agency conflict in a frictionless learning environment. When monitoring with ex post information, biased evaluators exaggerate how much experts could have known ex ante and underestimate experts on average. Experts, to defend their reputations, are too eager to base predictions on ex ante information that substitutes for the information jurors independently learn ex post and too reluctant to base predictions on ex ante information that complements the information jurors independently learn ex post. Instruments that mitigate Bayesian agency conflicts are either ineffective or directly backfire. Applications to defensive medicine are discussed.

Keywords: Biased beliefs; Hindsight bias; Misattribution; Monitoring; Defensive agency; Defensive medicine; D03; D2; D8

Journal Article.  13380 words.  Illustrated.

Subjects: Information, Knowledge, and Uncertainy ; Microeconomics ; Production and Organizations

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