People Unlikely to Change Their Mind, Even
When Facts Contradict Their Views - Study
November 21, 2015 "Information
Clearing House" - "RT"
-A fresh study has confirmed that people are reluctant to change
their minds and adapt their views, even when new information has
been presented. This holds true even if they stand to lose
The research from the University of Iowa is based
on previous studies indicating that people are particularly
likely to stick to their original viewpoint when they’ve had to
write their beliefs down– a phenomenon known as the ‘explanation
effect’, which also affects future actions.
In the study, Tom Gruca, a professor of marketing
at the Tippie College of Business, tried to find evidence of
something called ‘confirmation bias’ – the tendency to give
preference to existing information or beliefs, rather than
considering alternative possibilities. He says equity analysts
working on financial markets are particularly prone to this
bias, with those who issue written forecasts being especially
vulnerable to falling into the trap, despite having access to
new data to influence them.
Gruca believes the findings are particularly
relevant to market research, and that they may be used to better
predict trader behavior in future.
The study took place over a 10-year period,
between 1998 and 2008, and focused on the Iowa Electronic
Markets, an online futures market at the college, where payoffs
are contingent upon real life events. In that time frame, Gruca
had the students analyze the movie market. The students had to
predict four-week opening box office totals for 18 movies, while
also buying and selling contracts with real money.
It was discovered that, despite the initial
box office figures giving a good indication of potential
success, the student traders ignored the stocks and stuck to
their original predictions. As a result, nobody was buying or
selling – confirmation bias prevented the prices from becoming
In order to test for the presence of the bias,
Gruca had the student traders explain why they had made the
predictions they did prior to the beginning of trading.
According to his results, it was this process of explaining – or
the ‘explanation effect’ – that solidified the students’
beliefs and prevented their trading behavior from changing.
To keep from making erroneous conclusions, Gruca
used a ‘control group’ in his research – in this case a separate
group of people trading in markets, who weren’t asked to explain the
logic behind their forecasts. With the explanation effect missing,
it was found the respondents adjusted their opinions according to
the new information presented much more readily.
Consequently, the stock prices changed much more
fluidly than with the first group.
According to Gruca,
“This study shows that when all traders in a market have the same
bias — in this case, confirmation bias — market prices are not
efficient and do not reflect all of the information available.
“However, if some traders are not biased, then
market prices efficiently reflect new, relevant information,”
The study, co-authored by Michael Cipriano,
associate professor of accounting at the University of South
Carolina Upstate, and former Tippie MBA graduate, was published in
The Journal of Prediction Markets.