Abstract
Our lab experiment offers new insights on Bayesian probability updating and the effects of group discussion on risk decision making. We exploit a within-subject experimental setting based on Bougheas et al. (2015). We find that the majority of participants react to conflicting signals in a rational way, while we find no convincing evidence for (reverse) confirmation bias. More importantly, we study how group interaction affects investment decisions and investigate the motives behind the observed group convergence of decisions. We find a range of motives, with a large share of participants exhibiting the effects of persuasion and/or peer effects in that they tend to maintain the group stage investment level. This result suggests that group interactions can modify the individually preferred investment level. We also find evidence for social preferences.
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