Confirmation bias with motivated beliefs

Abstract

We investigate whether the confirmation bias is mitigated in signal-extraction environments by outside financial interests. We include a background strategic consideration leading to ‘motivated beliefs’ for people in one role, as they receive higher equilibrium payoffs in a background game in one of two states, while people in the other role receive the same equilibrium payoffs in both. We find systematic differences in beliefs and our results suggest that players with motivated beliefs deviate less from Bayesian updating. However, such players still exhibit a confirmation bias in that they place additional weight on confirming information, in contrast to Bayesians.