Double overreaction in beauty contests with information acquisition: theory and experiment

July 10, 2020
Issue 2020-09


Central banks' disclosures, such as forward guidance, have a weaker effect on the economy in reality than that predicted in theoretical models. The present paper contributes to understanding how people pay attention and react to various sources of information. In a beauty contest with information acquisition, we show that strategic complementarities give rise to a double overreaction to public disclosures by increasing agents equilibrium level of attention, which, in turn, increases the weight assigned to the disclosures in agents' equilibrium action. A laboratory experiment provides evidence that the effect of strategic complementarities on participants' realised level of attention and realised action is qualitatively consistent with the theoretical predictions, although quantitatively weaker. Both the lack of attention to public disclosures and a limited level of reasoning by economic agents account for the weaker realised reaction. This suggests that for a central bank seeking to control the reaction to its public disclosures, it is just as important to influence information acquisition by recipients as it is to shape the information disclosures.

Download file now

The file can be downloaded with the button below.

JEL classification:
D82, E52, D58
Central bank communication, information acquisition, beauty contest, overreaction

Additional files

Related content


  • Dr. Romain Baeriswyl

  • Kene Boun My

  • Camille Cornand

Your settings

Required: These cookies (e.g. for storing your IP address) cannot be rejected as they are necessary to ensure the operation of the website. These data are not evaluated further.
Analytics: If you consent to this category, data such as IP address, location, device information, browser version and site visitor behaviour will be collected. These data are evaluated for the SNB's internal purposes and are kept for two years.
Third-party: If you consent to this category, third-party services (used, for example, to add social multimedia content to the SNB's website) will be activated which collect personal data, process these data, disclose them abroad - worldwide - and place cookies. The relevant data protection regulations are linked in the 'Privacy statement for the website of the Swiss National Bank'.

Choose your preferred settings:

This website uses cookies, analytics tools and other technologies to provide requested features, content and services, to personalise the content shown, to provide links to social media, and to analyse the use of the website in anonymised form for the purposes of improving usability. Personal data are also disclosed abroad - worldwide - to video service providers and the analytics tools of these providers are used. More information is available under 'Manage settings'.