Should we postpone a decision to collect more information or decide based on the information already available? This is a typical dilemma not only in business life. Psychologists have found that most people tend to wait too long and spend too much on information collection. Why is that the case? Our study gives a surprising answer.
Many of us say we care about our privacy, but often disclose personal information. This asymmetry is called the “privacy paradox”. This phenomenon is only a paradox, however, if we assume people are rational or engage in rational disclosure decision-making. Taking into account our cognitive biases and the way online platforms are designed, it comes as no surprise that our disclosure behavior doesn’t always match our privacy preferences.
How much information do you need to make up your mind? Our research in various domains of decision making shows that we make decisions more quickly and based on less information than we think. This has important implications in an age in which information is plentiful.
Stocks yield much higher returns than bonds and other riskless securities. In fact, in the last 100 years US equities have seen an 8% average annual real return, compared to only a 1% return for more riskless securities. This gap is called the equity premium puzzle – why are equities valued so much higher than securities? One behavioral theory attributes the equity premium puzzle to what’s known as myopic loss aversion (MLA) – the idea that loss-averse investors (as all investors are) take too short-term a view of their investments, leading them to react overly negatively to short-term losses. We designed the first natural field experimental evidence to show that MLA exists for professional traders.
