How Does Choice Affect Beliefs?

Hajdu, Gergely ORCID: https://orcid.org/0000-0002-8957-032X and Krusper, Balázs (2022) How Does Choice Affect Beliefs? Department of Economics Working Paper Series, 322. WU Vienna University of Economics and Business, Vienna.

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Abstract

People tend to think more favorably about a product when they own it compared to when they do not own it. Going beyond the effect of ownership, we study how choosing a product affects beliefs about the values of products in the choice set. In the laboratory, participants either choose a product from a binary choice set or have one of the two products randomly assigned to them. To deal with the endogeneity in choices, we construct information that is both sufficiently clear to make choices predictable and sufficiently unclear to leave room for belief distortions. We find that making a choice increases the difference in beliefs between the two alternatives, and the effect is driven by pessimism: when a product is non-chosen, it is believed to be worse than when the same product is not assigned. When participants choose a product, but we shift their attention toward product evaluation, pessimism disappears, suggesting attention as an important driver. Since choices are often made under uncertainty, the effect we identify may play a role in a potentially wide range of settings. Our findings also have policy implications: active choice policies may be more effective tools than opt-out defaults.

Item Type: Paper
Keywords: biased beliefs, ownership, behavioral economics, choice effect
Classification Codes: JEL D9, D12
Divisions: Departments > Volkswirtschaft
Depositing User: Claudia Tering-Raunig
Date Deposited: 07 Jun 2022 12:14
Last Modified: 13 Jun 2022 13:14
URI: https://epub.wu.ac.at/id/eprint/8643

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