Information Projection: Model and Applications

People exaggerate the extent to which their information is shared with others. This paper introduces the concept of such information projection and provides a simple but widely applicable model. The key application describes a novel agency conflict in a frictionless learning environment. When monitoring with ex post information, biased evaluators exaggerate how much experts could have known ex ante and underestimate experts on average. Experts, to defend their reputations, are too eager to base predictions on ex ante information that substitutes for the information jurors independently learn ex post and too reluctant to base predictions on ex ante information that complements the information jurors independently learn ex post. Instruments that mitigate Bayesian agency conflicts are either ineffective or directly backfire. Limiting monitoring improves efficiency. Applications to defensive medicine are discussed.

[1]  Miguel A. Costa-Gomes,et al.  Strategic Thinking , 2020, Encyclopedia of Public Administration and Public Policy, Third Edition.

[2]  G Gigerenzer,et al.  Hindsight bias: a by-product of knowledge updating? , 2000, Journal of experimental psychology. Learning, memory, and cognition.

[3]  Malpractice issues in radiology: Hindsight bias , 2000 .

[4]  George Loewenstein,et al.  The Curse of Knowledge in Economic Settings: An Experimental Analysis , 1989, Journal of Political Economy.

[5]  R. Innes.  Limited liability and incentive contracting with ex-ante action choices , 1990 .

[6]  Philippe Jehiel,et al.  Revisiting games of incomplete information with analogy-based expectations , 2008, Games Econ. Behav..

[7]  Otha Linton.  Malpractice Issues in Radiology , 2009 .

[8]  K L Posner,et al.  Effect of outcome on physician judgments of appropriateness of care. , 1991, JAMA.

[9]  B. Fischhoff,et al.  Hindsight ≠ foresight: the effect of outcome knowledge on judgment under uncertainty* , 2003 .

[10]  Ted O'Donoghue,et al.  Projection Bias in Catalog Orders , 2007 .

[11]  H. Demsetz,et al.  Production, Information Costs, and Economic Organization , 1975, IEEE Engineering Management Review.

[12]  Sendhil Mullainathan,et al.  Are CEOs Rewarded for Luck? The Ones Without Principals Are , 2001 .

[13]  Benjamin E. Hermalin.  Managerial Preferences Concerning Risky Projects , 1993 .

[14]  A. Durell.  Attribution in Performance Evaluation , 2001 .

[15]  T. Gilovich,et al.  The spotlight effect in social judgment: an egocentric bias in estimates of the salience of one's own actions and appearance. , 2000, Journal of personality and social psychology.

[16]  B. Fischhoff,et al.  I knew it would happen: Remembered probabilities of once—future things , 1975 .

[17]  Colin Camerer,et al.  A Cognitive Hierarchy Model of Games , 2004 .

[18]  R. Pohl,et al.  SARA: A cognitive process model to simulate the anchoring effect and hindsight bias , 2003, Memory.

[19]  Ran Spiegler,et al.  The market for quacks , 2006 .

[20]  Frank Mueller-Langer,et al.  Strict Liability Versus Negligence , 2008, Encyclopedia of Law and Economics.

[21]  Terry Connolly,et al.  Hindsight Bias and Strategic Choice: Some Problems in Learning From Experience , 1988 .

[22]  F. J. Langdon,et al.  The Child's Conception of Space , 1967 .

[23]  Sendhil Mullainathan,et al.  A Memory Based Model of Bounded Rationality , 2000 .

[24]  Joel L. Schrag,et al.  First Impressions Matter: A Model of Confirmatory Bias , 1999 .

[25]  J. Payne,et al.  Juror Judgments in Civil Cases: Hindsight Effects on Judgments of Liability for Punitive Damages , 1999 .

[26]  Gregory N. Mandel.  Patently Non-Obvious: Empirical Demonstration that the Hindsight Bias Renders Patent Decisions Irrational , 2005 .

[27]  Bengt Holmstrom,et al.  A Theory of Wage Dynamics , 1982 .

[28]  Leaf Van Boven,et al.  The Illusion of Transparency in Negotiations , 2003 .

[29]  L. Berlin,et al.  Perceptual errors and negligence. , 1998, AJR. American journal of roentgenology.

[30]  Anne S. Henly,et al.  Speakers' overestimation of their effectiveness. , 2002, Psychological science.

[31]  Daniel P. Kessler,et al.  Do Doctors Practice Defensive Medicine? , 1996 .

[32]  Michael Waldman,et al.  Careers in organizations: Theory and evidence , 1999 .

[33]  B. Fischhoff,et al.  Hindsight is not equal to foresight: The effect of outcome knowledge on judgment under uncertainty. , 1975 .

[34]  M. Rabin.  Inference by Believers in the Law of Small Numbers , 2000 .

[35]  D. Blackwell.  Equivalent Comparisons of Experiments , 1953 .

[36]  Nancy A. Staudenmayer,et al.  Coordination Neglect: How Lay Theories of Organizing Complicate Coordination in Organizations , 2000 .

[37]  S. Salop,et al.  Self-Selection and Turnover in the Labor Market , 1976 .

[38]  Paul R. Milgrom,et al.  Good News and Bad News: Representation Theorems and Applications , 1981 .

[39]  Erin M. Harley,et al.  The "saw-it-all-along" effect: demonstrations of visual hindsight bias. , 2004, Journal of experimental psychology. Learning, memory, and cognition.

[40]  S. Shavell.  Strict Liability versus Negligence , 1980, The Journal of Legal Studies.

[41]  P. DeMarzo,et al.  Persuasion Bias, Social Influence, and Uni-Dimensional Opinions , 2001 .

[42]  Thomas Gilovich,et al.  Naive cynicism in everyday theories of responsibility assessment : On biased assumptions of bias , 1999 .

[43]  H. Arkes,et al.  Hindsight bias among physicians weighing the likelihood of diagnoses. , 1981, The Journal of applied psychology.

[44]  Colin F. Camerer,et al.  The rationality of prices and volume in experimental markets , 1992 .

[45]  A. Banerjee,et al.  A Simple Model of Herd Behavior , 1992 .

[46]  J. Baron,et al.  Outcome bias in decision evaluation. , 1988, Journal of personality and social psychology.

[47]  Richard P. Larrick,et al.  Cognitive Repairs : How Organizational Practices Can Compensate for Individual Shortcomings , 1998 .

[48]  David M Studdert,et al.  Defensive medicine among high-risk specialist physicians in a volatile malpractice environment. , 2005, JAMA.

[49]  Managerial Incentive Problems: A Dynamic Perspective , 1999 .

[50]  Daniel P. Kessler,et al.  How Liability Law Affects Medical Productivity , 2000, Journal of health economics.

[51]  Leonard Berlin,et al.  Malpractice Issues in Radiology , 1998 .

[52]  Bruno Biais,et al.  Hindsight Bias and Investment Performance , 2008 .

[53]  C. Shapiro,et al.  Equilibrium Unemployment as a Worker Discipline Device , 1984 .

[54]  C. Heath,et al.  Made to Stick: Why Some Ideas Survive and Others Die , 2007 .

[55]  Philip M. J. Reckers,et al.  The Mitigation of Hindsight Bias in Judges' Evaluation of Auditor Decisions , 1997 .

[56]  G. Loewenstein,et al.  Projection Bias in Predicting Future Utility , 2000 .

[57]  N. Epley,et al.  Egocentrism over e-mail: can we communicate as well as we think? , 2005, Journal of personality and social psychology.

[58]  Bengt Holmstrom,et al.  Moral Hazard and Observability , 1979 .

[59]  Erin M. Harley.  HINDSIGHT BIAS IN LEGAL DECISION MAKING , 2007 .

[60]  Don A. Moore,et al.  Misperceiving the value of information in predicting the performance of others , 2006 .

[61]  J. Rachlinski.  A Positive Psychological Theory of Judging in Hindsight , 1998 .

[62]  Fred B. Bryant,et al.  A Meta-Analysis of Research on Hindsight Bias , 2004 .

[63]  T. Gilovich,et al.  The illusion of transparency: biased assessments of others' ability to read one's emotional states. , 1998, Journal of personality and social psychology.

[64]  Eld,et al.  Cursed Equilibrium , 2000 .

[65]  Philippe Jehiel,et al.  Analogy-based expectation equilibrium , 2004, J. Econ. Theory.

[66]  J. Wolfers,et al.  Research Paper Series Graduate School of Business Stanford University Are Voters Rational? Evidence from Gubernatorial Elections Are Voters Rational? Evidence from Gubernatorial Elections , 2022 .

[67]  Edward P. Lazear,et al.  Salaries and Piece Rates , 1986 .

[68]  Martin Weber,et al.  Hindsight Bias, Risk Perception, and Investment Performance , 2009, Manag. Sci..

[69]  Canice Prendergast,et al.  Favoritism in Organizations , 1993, Journal of Political Economy.

[70]  Martin Weber,et al.  Hindsight-Bias im Prinzipal-Agent-Kontext: Die Aktennotiz als Antwort? , 1998 .