Prioritizing beliefs and the formation of expectations

Abstract

How do expectations for novel opportunities—like Amazon from the perspective of 1998—come about? To form such expectations, decision-makers need to derive plausible conclusions that go beyond the available information by interpreting it with the help of theories. I explain why asymmetric expectations among rational individuals can exist, even when information is symmetric: Differences in the willingness to question of (defined as “a preference ordering over”) elementary theoretical explanations of the novelty bring about heterogeneity in final expectations. I further argue that one source of better expectations is the skill to choose the relative willingness to question beliefs and thus the skill to integrate theories. I identify the skills of decision-makers to detect and resolve inconsistencies and to decide when to give up beliefs again as sources of advantages in forming expectations.