Belief updating with misinformation: The role of prior beliefs

In this paper we study experimentally how people process verifications of previously received information. We propose a theoretical model that builds on the standard framework of Grether (1980) to provide a unified mechanism that describes how people react to retractions and confirmations. Our data corroborates the predictions of this model, showing that reactions to verifications are explained by the prior beliefs, i.e., for low priors subjects underreact to retractions and overreact to confirmations, whereas for high priors they overreact to retractions and underreact to confirmations. Our explanation is consistent with the idea that people overreact to unexpected information, which is a direct consequence of base rate neglect within our model. Our findings are qualitatively robust in various dimensions that we tested, and indicate that the way people react to retractions is more nuanced than it has been thought so far.