Experts' ability to predict the future fosters unwarranted optimistic expectations

Area of Science:

• Behavioral Economics
• Consumer Psychology
• Decision Science

Background:

• Consumers often rely on expert predictions for financial decisions.
• The perceived accuracy of experts can influence expectations and investment behavior.

Purpose of the Study:

• To investigate how the mere belief in experts' predictive accuracy influences consumer expectations and investment decisions regarding asset value.
• To explore the psychological mechanisms, such as the community of knowledge, underlying this bias.

Main Methods:

• Experimental manipulation of perceived expert accuracy.
• Focus on consumer expectations and investment in stock value predictions.
• Drawing on the concept of the community of knowledge.

Main Results:

• The belief that experts possess higher predictive accuracy (vs. lower) leads to unfounded optimistic expectations about future stock value.
• Consumers invest more in stocks when they believe experts are highly accurate, even if specific predictions are undisclosed.
• This bias is linked to a sense of empowerment reducing perceived risk.

Conclusions:

• Awareness of expert accuracy, not the predictions themselves, can create biased financial expectations.
• Unfounded optimism about asset value may lead to detrimental investment choices for consumers.
• Understanding this bias is crucial for financial literacy and safeguarding personal finances and social welfare.