UiS Business School Seminar: How Does Choice Affect Beliefs?

People tend to think more favourably 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 select a product from a binary choice set or have one of the two products randomly assigned to them. To deal with the endogeneity in options, we construct information that is both sufficiently clear to make choices predictable and unclear enough 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 is 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 than opt-out defaults.

Link to paper.

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