Preferences for Warning Signal Quality: Experimental Evidence / Alexander Ugarov, Arya Gaduh, Peter McGee.

Format:

Book

Author/Creator:

Ugarov, Alexander.

Contributor:

Gaduh, Arya.

McGee, Peter.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w34992.

NBER working paper series no. w34992

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2026.

Summary:

We use a laboratory experiment to study preferences over false-positive and false-negative rates of warning signals for an adverse event with a known prior. We find that subjects decrease their demand with signal quality, but less than predicted by our theory. There is asymmetric under-responsiveness by prior: for a low (high) prior, their willingness-to-pay does not fully adjust for the increase in the false-positive (false-negative) costs. We show that neither risk preference nor Bayesian updating skills can fully explain our results. Our results are most consistent with a decision-making heuristic in which subjects do not distinguish between false-positive and false-negative errors.

Notes:

March 2026.

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