Understanding Individuals' Beliefs

Abstract

We live in a world surrounded by uncertainty and within this uncertainty human beings have to decide every action, every turn of life. When individuals take decisions the true value of parameters relevant for that decision are usually unknown and rarely important ex-ante. The final outcome, realized ex-post, indeed depends on the true parameters, but the decision does not. It usually depends just on the beliefs individuals have about these parameters. The aim of this dissertation is to contribute to a better understanding of the formation of individuals’ beliefs under realistic economic environments. Chapter 1 deals with the information acquisition decisions of individuals who face uncertainty about their own ability. At a theoretical level (Bénabou and Tirole, 2002), it has been shown that overconfident individuals (people with beliefs about themselves higher than reality) with time inconsistent preferences would more often prefer not to know their true ability before performing a certain task. A field experiment in the area of education is designed and implemented confirming the theoretical hypothesis. Chapter 2 explores the dynamics of beliefs with respect to the benefits of the introduction of the single currency (Euro) in Europe. The main result supports the existence of more optimistic beliefs during both the dates of the introduction of the Euro (the non-physical introduction in 1999 and the physical introduction in 2002) with respect to the period before and the period after the implementation. Finally, Chapter 3 explores the determinants of trust in order to better estimate the causal effect of trust on social efficiency. The reverse-causality problem is addressed by introducing an innovative set of instruments for trust from the field of neuroeconomics. The depurated effect is higher than in previous research, emphasizing the relevance of trust in increasing the efficiency of social organizations.