Abstract
Adapting a definition introduced by Milgrom (1981) we say that a signal about the environment is good news relative to some initial beliefs if the posterior beliefs dominate the initial beliefs in the sense of first-order stochastic dominance (the assumption being that higher values of the parameter representing the environment mean better environments). We give an example where good news leads to the adoption of a more pessimistic course of action (we say that action a 1, reveals greater pessimism than action a 2, if it gives higher payoff in bad environments and lower payoff in good environments). We then give sufficient conditions for a signal not to induce a more pessimistic choice of action.
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References
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A first version of this paper was written when the author was Heyworth Research Fellow at Nuffield College, Oxford, and presented at the Second Annual Congress of the European Economic Association (Copenhagen, August 1987). The author is grateful to an anonymous referee for helpful comments.
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Bonanno, G. Can good news lead to a more pessimistic choice of action?. Theor Decis 25, 123–136 (1988). https://doi.org/10.1007/BF00134156
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DOI: https://doi.org/10.1007/BF00134156