Biases in Belief Updating Within and Across Domains

Why do people sometimes overreact to new information and other times underreact?We develop a model in which the strength of a signal-how much one should update their beliefs with new information-depends on multiple features of the information environment.Limited attention to these features leads to misperceptions of signal strength: people approach a problem with an experience-based prior, which they adjust only partially based on how much attention they pay to different features.This mechanism explains a wide range of belief-updating patterns.Insensitivity to a single feature generates underreaction to strong and overreaction to weak signals, and more neglected features amplify this.Insensitivity to multiple features can instead break that pattern: insensitivity to one feature can generate excess sensitivity with respect to another, leading to overreaction to both weak and strong signals.A series of experiments provides support for the model and its underlying mechanism.