Essays in Behavioral Economics

Abstract

This dissertation includes three self-contained essays, each considering a different question on the process of belief formation that can leave the decision-maker with biased beliefs. In the first essay, “Experimental Evidence on Misguided Learning” (joint work with Lorenz Goette), we study how people form beliefs in environments with multiple unknown parameters, some of which are relevant to agents’ self-esteem. We examine how initial bias in beliefs about an ego-relevant characteristic affects learning about the state of the world. In the second essay, “Belief-based Utility and Signal Interpretation”, I take a closer look at the fundamental processes that govern belief formation, as I investigate how people interpret favorable and unfavorable feedback. In the final essay, “Hope for the Best, Prepare for the Worst: Signal Anticipation and Ex-ante Belief Manipulation”, I experimentally test a model of belief choice with reference-dependent utility, which allows me to understand the complexities of belief formation, uncover the underlying factors, and link them to overconfidence.