Social Identity Bias in Information Processing and Information Demand

Project Start:10/2020
Researchers:Kevin Bauer, Yan Chen, Florian Hett, Michael Kosfeld
Category: Household Finance, Experiment Center
Funded by:SAFE

"There is a general perception that societies become more polarized along political and social dimensions. Specifically, the increasing role of digital media in the process of belief and opinion formation as well as information gathering and processing is typically considered as a fundamental driver behind these developments.

Literature in Social Psychology, and more recently also in Economics, has documented strong behavioral effects of individuals’ perceptions of group memberships (ingroup bias). Recently, there is also increasing evidence that the sensitivity of behavior to groups (“groupiness”) displays systematic heterogeneity between individuals.

We study the role of social identity and ""groupiness"" (the individual tendency to display in-group bias in allocation decisions) in the processing of and demand for information using an online experiment with a representative sample of the US population, embedded within the upcoming US Presidential election on November 3. Specifically, we ask whether (i) people update their beliefs in reaction to consuming news in a biased way, (ii) whether this bias increases if partisan news labels are observable, and (iii) whether ""groupiness"" as measured by other-other allocations (Lane 2016) moderates both these effects.

In our online experiment, participants have to predict economically relevant statistics conditional on the outcome of the US presidential election. To update their initial predictions, individuals receive or can select articles on the respective subjects among different news sources. Our key experimental variation is whether the articles come with a label of the news outlet or not, where news outlets differ in their overlap with the participants’ partisan group. Our hypotheses are that the same information receives a smaller updating weight/is less often chosen if the corresponding source holds an “outgroup” label. Further, we expect this effect to be stronger for participants who are more “groupy”.

How people form their beliefs about the way policies and electoral outcomes affect economically relevant issues, and the role that news and the media play therein, is a relevant question for financial research: As individual beliefs shape financial (e.g., investment) behavior, a better understanding of the mechanisms underlying potential biases in belief formation and information processing might ultimately also improve our understanding of the mediating role of news and media in the effect of policy on financial markets."