A Mind Is a Terrible Thing to Change: Confirmatory Bias in Financial Markets

Pouget, Sébastien; Sauvagnat, Julien; Villeneuve, Stéphane

doi:10.1093/rfs/hhw100

Cited by 98 publications

(31 citation statements)

References 70 publications

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“…That is because once the agent starts believing in the wrong state, confirmatory bias is likely to cause her to perceive subsequent signals as continually building support for that hypothesis. Pouget, Sauvagnat, and Villeneuve (2017)…”

Section: B Evidence and Modelsmentioning

confidence: 99%

Errors in probabilistic reasoning and judgment biases

Benjamin

2019

Handbook of Behavioral Economics: Applications and Foundations 1

144

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Errors in probabilistic reasoning have been the focus of much psychology research and are among the original topics of modern behavioral economics. This chapter reviews theory and evidence on this topic, with the goal of facilitating more systematic study of belief biases and their integration into economics. The chapter discusses biases in beliefs about random processes, biases in belief updating, the representativeness heuristic as a possible unifying theory, and interactions between biased belief updating and other features of the updating situation. Throughout, I aim to convey how much evidence there is for (and against) each putative bias, and I highlight when and how different biases may be related to each other. The chapter ends by drawing general lessons for when people update too much or too little, reflecting on modeling challenges, pointing to areas of economics to which the biases are relevant, and highlighting some possible directions for future work.

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Section: B Evidence and Modelsmentioning

confidence: 99%

Errors in probabilistic reasoning and judgment biases

Benjamin

2019

Handbook of Behavioral Economics: Applications and Foundations 1

144

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“…Two other psychological phenomena that are related to conservatism and that may also cause stickiness in beliefs are "belief perseverance" and "confirmation bias"(Rabin and Schrag, 1999; Baron, 2000;Pouget et al, 2017).26 In a laboratory study of expectation formation,Landier et al (2017) document both underreaction and overreaction in individual forecasts, but also find that overreaction, in the form of extrapolative expectations, predominates.…”

mentioning

confidence: 99%

Psychology-Based Models of Asset Prices and Trading Volume

Barberis

2018

Handbook of Behavioral Economics: Applications and Foundations 1

119

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“…Several seminal papers, in contrast, emphasize the role of speculation on price formation when agents hold heterogeneous beliefs or priors (Miller, 1977;Harris and Raviv, 1993). For example, agents can trade because they are overconfident about their own trading abilities (Scheinkman and Xiong, 2003), because they suffer from confirmatory bias (Pouget et al, 2014), or because they are trying to infer what others are thinking (Biais and Bossaerts, 1998). These models suggest that "market sentiment" or differences of opinion can push prices above fundamentals.…”

mentioning

confidence: 99%