Contagion of Wishful Thinking in Markets
Coauthor(s): Nicholas Seybert.
Adobe Acrobat PDF
Prior research provides only weak and controversial evidence that people overestimate the likelihood of
desirable events (wishful thinking), but strong evidence that people bet more heavily on those events (wishful
betting). Two experiments show that wishful betting contaminates beliefs in laboratory financial markets
because wishful betters appear to possess more favorable information than they actually do. As a consequence,
market interaction exacerbates rather than mitigates wishful thinking. This phenomenon, "contagion of wishful
thinking," could be problematic in many settings where people infer others? beliefs from their behavior.
Source: Management Science
Bloomfield, Robert, and Nicholas Seybert. "Contagion of Wishful Thinking in Markets." Management Science 55, no. 5 (May 2009): 738-751.