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SUMMARY:Bonn Applied Micro Seminar: Cuimin Ba\, “Over- and Underreaction 
 to Information: The Role of Complexity in Belief-Updating”
DESCRIPTION:Cuimin Ba\, J. Aislinn Bohren\, and Alex Imas:\n“Over- and Un
 derreaction to Information: The Role of Complexity in Belief-Updating”\n
 \nThis paper explores how cognitive constraints—namely\, attention and p
 rocessing capacity—interact with properties of the learning environment 
 to determine how people react to information. In our model\, people form a
  simplified mental representation of the environment via salience-channel
 ed attention\, then process information with cognitive imprecision. The mo
 del predicts overreaction to information when environments are complex\, s
 ignals are noisy\, information is surprising\, or priors are concentrated 
 on less salient states\; it predicts underreaction when environments are s
 imple\, signals are precise\, information is expected\, or priors are conc
 entrated on salient states. Results from a series of pre-registered exper
 iments provide support for these predictions and direct evidence for the p
 roposed cognitive mechanisms. We show that the two psychological mechanism
 s act as cognitive complements: their interaction is critical for explaini
 ng belief data\, and together they yield a highly complete model in terms
  of capturing explainable variation in belief-updating. Our theoretical an
 d empirical results connect disparate findings in prior work: underreactio
 n is typically found in laboratory studies\, which feature simple learning
  settings\, while overreaction is more prevalent in financial markets whic
 h feature greater complexity.\n\nhttps://cuiminba.com/uploads/Overreaction
 .pdf
LOCATION:IZA - Institute of Labor Economics\, Schaumburg-Lippe-Straße 5-9\
 , 53113 Bonn\, Germany
DTSTART:20250617T121500Z
DTEND:20250617T133000Z
DTSTAMP:20250419T074010Z
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