Can good news lead to a more pessimistic choice of action?
β Scribed by Giacomo Bonanno
- Publisher
- Springer US
- Year
- 1988
- Tongue
- English
- Weight
- 482 KB
- Volume
- 25
- Category
- Article
- ISSN
- 0040-5833
No coin nor oath required. For personal study only.
β¦ Synopsis
Adapting a definition introduced by Milgrom (1981) we say that a signal about the environment is good news relative to some initial beliefs if the posterior beliefs dominate the initial beliefs in the sense of first-order stochastic dominance (the assumption being that higher values of the parameter representing the environment mean better environments). We give an example where good news leads to the adoption of a more pessimistic course of action (we say that action a~ reveals greater pessimism than action a2, if it gives higher payoff in bad environments and lower payoff in good environments). We then give sufficient conditions for a signal not to induce a more pessimistic choice of action.
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