Distrust in Experts and the Origins of Disagreement

Abstract

Why do individuals interpret the same information differently? When the credibility of signal sources is uncertain, agents must determine how much weight to give signals. We propose that individuals mistakenly use signals to infer their source's credibility before forming posteriors. This predicts that individuals disagree over both an unknown state and credibility when they encounter signals in different order, even if individuals share common priors and information, because of different first impressions of credibility. This can generate overconfidence, confirmation bias, and their opposites, and provides a theory for the origins of disagreement underlying models of speculative trading and price volatility.