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We are grateful to Youichiro Higashi, Hidetoshi Komiya, Hiroyuki Ozaki, Shin’ichi Suda, Masayuki Yao, and participants at Nagoya University, Keio University, and China Meeting of Econometric Society 2016 (Chengdu, China). 19114 Issued in June 2013, Revised in July 2013 NBER Program(s): Industrial Organization, Labor Studies, Public Economics We introduce and analyze a model in which agents observe sequences of signals about the state of the world, some of which are ambiguous and open to interpretation.

First of all the normative answer to Question 1 – based on simple Bayesian reasoning – is 20% for North Bayesland and 80% for South Bayesland.Both errors have the effect of exaggerating the evidence in favour of the solver’s prior belief and could lead to confirmation bias and polarisation. Government is authorized to reproduce and distribute reprints for governmental purposes notwithstanding any copyright annotation therein.Given the importance of the class of problems to which the study applies, we believe that greater understanding of the cognitive processes underlying the errors should therefore be an important avenue for future study. Funding was also provided by the ERC project ERC-2013-Ad G339182-BAYES_KNOWLEDGE and the Leverhulme Trust project RPG-2016-118 CAUSAL-DYNAMICS.The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program.IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public.

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