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What is Understanding Underreaction in Belief Formation about?

This paper presents a two-stage model of belief formation that explains how individuals react to information based on the complexity of the learning environment. It predicts overreaction in complex environments with noisy signals and underreaction in simpler settings with precise signals, supported by pre-registered experiments. The findings reconcile discrepancies between laboratory studies showing underreaction and financial market observations indicating overreaction, highlighting the role of cognitive i

Author

happylemon66666

Language

EN