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Contagion of Wishful Thinking in Markets

Author

Listed:
  • Nicholas Seybert

    (McCombs School of Business, University of Texas at Austin, Austin, Texas 78712)

  • Robert Bloomfield

    (Johnson Graduate School of Management, Cornell University, Ithaca, New York 14853)

Abstract

Prior research provides only weak and controversial evidence that people overestimate the likelihood of desirable events (wishful thinking), but strong evidence that people bet more heavily on those events (wishful betting). Two experiments show that wishful betting contaminates beliefs in laboratory financial markets because wishful betters appear to possess more favorable information than they actually do. As a consequence, market interaction exacerbates rather than mitigates wishful thinking. This phenomenon, "contagion of wishful thinking," could be problematic in many settings where people infer others' beliefs from their behavior.

Suggested Citation

  • Nicholas Seybert & Robert Bloomfield, 2009. "Contagion of Wishful Thinking in Markets," Management Science, INFORMS, vol. 55(5), pages 738-751, May.
    • Handle: RePEc:inm:ormnsc:v:55:y:2009:i:5:p:738-751
    DOI: 10.1287/mnsc.1080.0973
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    References listed on IDEAS

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    Cited by:

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    3. Camilleri, Adrian R. & Dankova, Katarina & Ortiz, Jose M. & Neelim, Ananta, 2023. "Increasing worker motivation using a reward scheme with probabilistic elements," Organizational Behavior and Human Decision Processes, Elsevier, vol. 177(C).
    4. Shimon Kogan & Florian H. Schneider & Roberto A. Weber, 2021. "Self-serving biases in beliefs about collective outcomes," ECON - Working Papers 379, Department of Economics - University of Zurich.
    5. Gilberto Montibeller & Detlof von Winterfeldt, 2015. "Cognitive and Motivational Biases in Decision and Risk Analysis," Risk Analysis, John Wiley & Sons, vol. 35(7), pages 1230-1251, July.
    6. Coussement, Kristof & De Bock, Koen W., 2013. "Customer churn prediction in the online gambling industry: The beneficial effect of ensemble learning," Journal of Business Research, Elsevier, vol. 66(9), pages 1629-1636.
    7. Nina Mazar & Kristina Shampanier & Dan Ariely, 2017. "When Retailing and Las Vegas Meet: Probabilistic Free Price Promotions," Management Science, INFORMS, vol. 63(1), pages 250-266, January.
    8. Lahav, Yaron & Santo, Or, 2022. "Wishful betting," Economics Letters, Elsevier, vol. 218(C).
    9. Kurdoglu, Rasim Serdar & Lerner, Daniel & Ates, Nufer Yasin, 2022. "Unsticking the rationality stalemate: Motivated reasoning, reality, and irrationality," Journal of Business Venturing Insights, Elsevier, vol. 18(C).
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    12. Jeffrey Hales & Xi (Jason) Kuang & Shankar Venkataraman, 2011. "Who Believes the Hype? An Experimental Examination of How Language Affects Investor Judgments," Journal of Accounting Research, Wiley Blackwell, vol. 49(1), pages 223-255, March.

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