06 JUL 2012 by ideonexus
The Curse of Knowledge
Call the random variable being forecasted X. If X is a discrete event,
then it has the value zero or one. Forecasts of X depend on the
information set available to the forecaster. Assume that there are two
information sets Io and II, where Io is a subset of II. A forecaster
with information set I, knows everything that the forecaster with in-
formation set Io knows, and more.3 Denote the optimal forecast of X
given the information set I...
1 
Experts tend to assume others have the same knowledge they do and have difficulty taking the perspective of someone without their expertise. As a result, someone selling a car will sell it for less when they know about defects undetectable by buyers, investors will assume other investors are acting on the same knowledge they privately hold, and teachers will assume more knowledge from students then they actually have.
