Information acquisition with correlation neglect

Title: Information acquisition with correlation neglect

Abstract: Most belief formation literature examines how people react to a given set of information. However, individuals with non-Bayesian beliefs may acquire information differently before forming their beliefs. This paper focuses on correlated information, common in the news media. I show, individuals who neglect correlation, have a stronger information demand. In some cases, this leads to overconsumption, as more signals induce greater bias ex-post. I propose an experiment that closely mirrors this setup. This offers an alternative explanation for why people often overreact to highly correlated financial news but underreact in controlled settings.