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The Curse of Knowledge in Economic Settings: An Experimental Analysis

Colin Camerer, George Loewenstein and Martin Weber
Journal of Political Economy
Vol. 97, No. 5 (Oct., 1989), pp. 1232-1254
Stable URL: http://www.jstor.org/stable/1831894
Page Count: 23
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The Curse of Knowledge in Economic Settings: An Experimental Analysis
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Abstract

In economic analyses of asymmetric information, better-informed agents are assumed capable of reproducing the judgments of less-informed agents. We discuss a systematic violation of this assumption that we call the "curse of knowledge." Better-informed agents are unable to ignore private information even when it is in their interest to do so; more information is not always better. Comparing judgments made in individual-level and market experiments, we find that market forces reduce the curse by approximately 50 percent but do not eliminate it. Implications for bargaining, strategic behavior by firms, principal-agent problems, and choice under uncertainty are discussed.

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