Tashfeen Saeed

While a large empirical literature documents systematic biases in belief updating, most work elicits posterior beliefs directly, leaving unresolved at which stage these biases arise. Using an experimental framework, I separate and examine the two stages of belief updating: evaluating evidence and forming posteriors with that evidence. I show that systematic distortions in the form of overestimation begin during evidence evaluation. These distortions then carry through with little additional error, suggesting that posterior beliefs are largely consistent with participants' evaluation of that evidence. Additionally, intervening at the evidence evaluation stage -- either through elicitation or information provision -- substantially improves posterior beliefs. In a second experiment, I then show that the absolute magnitude of evidence systematically shapes posterior beliefs, a dimension not captured by both Bayesian updating and a large class of behavioral models, both of which explain belief biases through distortions in the relative strength of evidence. These findings establish the importance of evidence evaluation in addressing systematic belief biases and in informing richer models of belief formation.

I examine whether adaptation to an information environment shapes belief updating. I first develop an efficient coding model in which signal proportions are represented internally with noise before being used in inference. The model predicts that information is encoded more precisely in regions of the signal space encountered more frequently, leading to more responsive beliefs. I test this prediction experimentally by varying recent exposure to signal proportions and prior probabilities over states to generate different cutoffs over the signal space, allowing the adaptation prediction to be tested in low, intermediate, and high regions of the signal space. Participants adapted to the region surrounding the relevant cutoff exhibit both greater responsiveness and large level shifts to evidence compared to participants adapted to a more distant region. The results show that identical information environments can alter how new evidence is represented and incorporated into economic beliefs.