Correlation Neglect in Belief Formation
Benjamin Enke, Florian Zimmermann
Review of Economic Studies · 2019
Abstract
Investigates whether and how people account for the correlation (redundancy) of information sources. The authors show that people suffer from correlation neglect, treating correlated and redundant signals as if they were independent, leading to extreme, double-counted beliefs.
Methodology
Controlled laboratory experiments where participants received a series of information signals about an asset's value. The correlation structure of these signals was varied (ranging from fully independent to heavily overlapping).
Findings
Participants consistently treated redundant signals as independent confirmation. Even when the correlation structure was fully transparent and simple, correlation neglect persisted, leading to significant overconfidence and belief polarization.
Applied nudge
Aggregate and summarize redundant signals automatically. Instead of showing multiple notices from the same root source, provide a single, unified signal showing the degree of underlying agreement.
Citation
Enke, B., & Zimmermann, F. (2019). Correlation neglect in belief formation. Review of Economic Studies, 86(1), 313-332.
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