Paying $1 to Lose $2: Misperceptions of the Value of Information in Predicting the Performance of Others

Carnegie Mellon Behavioral Decision Research Working Paper No. 301

Posted: 6 Nov 2002

See all articles by George Loewenstein

George Loewenstein

Carnegie Mellon University - Department of Social and Decision Sciences

Don A. Moore

University of California, Berkeley - Haas School of Business

Roberto A. Weber

University of Zurich - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 16, 2002

Abstract

Traditional economic and decision-making models allow for "free disposal" of information, meaning that more information will always make a decision maker (weakly) better off. This implies that those faced with decisions should always place non-negative value on information. Building on previous research on the "curse of knowledge," we explore situations where this might not be so. In three experiments, we document situations in which subjects place positive value on information, even when learning that information hurts their performance and earnings. In the first experiment, a significant number of subjects pay for information - the solution to a puzzle - that hurts their ability to predict how many others will solve the puzzle. In the second experiment, a majority of subjects choose to "hire" informed - rather than uninformed - agents, leading to lower earnings. The third experiment reveals that the phenomenon is not reduced with experience, but that also that there are individual differences in the degree to which subjects fall victim to the bias. We discuss implications of our results for the role of information and informed decision makers in real economic situations.

Keywords: Curse of knowledge, information, biases and heuristics, experiments

JEL Classification: C91, D83

Suggested Citation

Loewenstein, George F. and Moore, Don A. and Weber, Roberto A., Paying $1 to Lose $2: Misperceptions of the Value of Information in Predicting the Performance of Others (July 16, 2002). Carnegie Mellon Behavioral Decision Research Working Paper No. 301, Available at SSRN: https://ssrn.com/abstract=323221 or http://dx.doi.org/10.2139/ssrn.323221

George F. Loewenstein

Carnegie Mellon University - Department of Social and Decision Sciences ( email )

Pittsburgh, PA 15213-3890
United States
412-268-8787 (Phone)
412-268-6938 (Fax)

Don A. Moore

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Roberto A. Weber (Contact Author)

University of Zurich - Department of Economics ( email )

Zuerich, 8006
Switzerland

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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