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Wishful thinking

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  • Mayraz, Guy

Abstract

An experiment tested whether and in what circumstances people are more likely to believe an event simply because it makes them better off. Subjects observed a financial asset's historical price chart, and received both an accuracy bonus for predicting the price at some future point, and an unconditional award that was either increasing or decreasing in this price. Despite incentives for hedging, subjects gaining from high prices made significantly higher predictions than those gaining from low prices. The magnitude of the bias was smaller in charts with less subjective uncertainty, but was independent of the amount paid for accurate predictions.

Suggested Citation

  • Mayraz, Guy, 2011. "Wishful thinking," LSE Research Online Documents on Economics 121942, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:121942
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    File URL: http://eprints.lse.ac.uk/121942/
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    References listed on IDEAS

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    Cited by:

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    2. Victor Augias & Daniel M A Barreto, 2022. "Persuading a Wishful Thinker," Working Papers hal-04066849, HAL.
    3. Victor Augias & Daniel M A Barreto, 2022. "Persuading a Wishful Thinker," SciencePo Working papers Main hal-04066849, HAL.
    4. Fellner-Röhling, Gerlinde & Hromek, Kristijan & Kleinknecht, Janina & Ludwig, Sandra, 2023. "How to counteract biased self-assessments? An experimental investigation of reactions to social information," Journal of Economic Behavior & Organization, Elsevier, vol. 206(C), pages 1-25.
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    6. Schwandt, Hannes, 2013. "Unmet Aspirations as an Explanation for the Age U-shape in Human Wellbeing," IZA Discussion Papers 7604, Institute of Labor Economics (IZA).
    7. Ritwik Banerjee & Nabanita Datta Gupta & Marie Claire Villeval, 2018. "Self Confidence Spillovers and Motivated Beliefs," Economics Working Papers 2018-02, Department of Economics and Business Economics, Aarhus University.
    8. Cacault, Maria Paula & Grieder, Manuel, 2019. "How group identification distorts beliefs," Journal of Economic Behavior & Organization, Elsevier, vol. 164(C), pages 63-76.
    9. Schwardmann, Peter, 2019. "Motivated health risk denial and preventative health care investments," Journal of Health Economics, Elsevier, vol. 65(C), pages 78-92.
    10. Bonaccorsi, Andrea & Apreda, Riccardo & Fantoni, Gualtiero, 2020. "Expert biases in technology foresight. Why they are a problem and how to mitigate them," Technological Forecasting and Social Change, Elsevier, vol. 151(C).
    11. Lahav, Yaron & Santo, Or, 2022. "Wishful betting," Economics Letters, Elsevier, vol. 218(C).
    12. Robert West & Susan Michie & G. James Rubin & Richard Amlôt, 2020. "Applying principles of behaviour change to reduce SARS-CoV-2 transmission," Nature Human Behaviour, Nature, vol. 4(5), pages 451-459, May.
    13. Hebous, Shafik & Jia, Zhiyang & Løyland, Knut & Thoresen, Thor O. & Øvrum, Arnstein, 2023. "Do Audits Improve Future Tax Compliance in the Absence of Penalties? Evidence from Random Audits in Norway," Journal of Economic Behavior & Organization, Elsevier, vol. 207(C), pages 305-326.

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    More about this item

    Keywords

    wishful-thinking; optimal expectations; priors and desires; payoff-dependent beliefs; asset prices; wellbeing;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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