Abstract

Confirmatory bias, defined as the tendency to misinterpret new pieces of evidence as confirming previously held hypotheses, can lead to implacable, even incorrect decision making. It is one of the biases, along with anchoring, framing, and other judgment heuristic errors, that may lead to non-optimal behavior. This paper tests for the existence of confirmatory bias behavior in a uniquely economic setting (tax policy) and in a context relatively lacking in ambiguity. It also tests whether the confirmatory bias phenomenon can be prevalent enough to affect aggregate outcomes, a characteristic important in economic models in particular. The results indicate not only that confirmatory bias exists, but that the confirmatory bias effect may be stronger for evidence relating to losses than for comparable evidence relating to gains.