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American Economic Journal: Microeconomics: Vol. 3 No. 2 (May 2011)

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The Good News-Bad News Effect: Asymmetric Processing of Objective Information about Yourself

Article Citation

Eil, David, and Justin M. Rao. 2011. "The Good News-Bad News Effect: Asymmetric Processing of Objective Information about Yourself." American Economic Journal: Microeconomics, 3(2): 114-38.

DOI: 10.1257/mic.3.2.114

Abstract

We study processing and acquisition of objective information regarding qualities that people care about, intelligence and beauty. Subjects receiving negative feedback did not respect the strength of these signals, were far less predictable in their updating behavior and exhibited an aversion to new information. In response to good news, inference conformed more closely to Bayes' Rule, both in accuracy and precision. Signal direction did not affect updating or acquisition in our neutral control. Unlike past work, our design varied direction and agreement with priors independently. The results indicate that confirmation bias is driven by direction; confirmation alone had no effect. (JEL D82, D83)

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Authors

Eil, David (U CA, San Diego)
Rao, Justin M. (Yahoo! Research Labs, Santa Clara, CA)

JEL Classifications

D82: Asymmetric and Private Information
D83: Search; Learning; Information and Knowledge; Communication; Belief

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