Event Details

Seminar hosted by the Ecnomics Department

Miguel Costa-Gomes will present Seminar “Cursed bets on markets” (joint work with Philipp Albert, Steffen Huck and GeorgWeizsacker)

Abstract: In many economic situations anagent's payoff depends on market interactions between other agents. Our experiment tests the understanding of selection effects arising in such interactions. The market includes a buyer who can be one of two types, enabling a possible selection in equilibrium. We find that participants in the role of outside observers largely fail to account for this selection, in a binary investment task that amounts to betting on market outcomes. When selection arises in the market, participants show patterns of mistakes akin to cursed beliefs (Eyster and Rabin, 2005) and leave more than a third of possible payoff increases on the table. The bias shrinks by about half of its size in an equivalent but cognitively simpler treatment where reasoning about others requires only first-order beliefs.