One party may know the size of the amount being divided while the other does not. įor example, two people are bargaining over dividing money or provisions. People cannot utilize their additional, better information, even when they should in a bargaining situation.
However, in these analyses, there is an assumption that better-informed parties can optimally exploit their information asymmetry when they, in fact, cannot. Most theoretical analyses of situations where one party knew less than the other focused on how the lesser-informed party attempted to learn more information to minimize information asymmetry. The idea that better-informed parties may suffer losses in a deal or exchange was seen as something important to bring to the sphere of economic theory. This research led the economists Camerer, Loewenstein, and Weber to focus on the economic implications of the concept and question whether the curse harms the allocation of resources in an economic setting. In his paper, Fischhoff questions the failure to empathize with ourselves in less knowledgeable states, and notes that how well people manage to reconstruct perceptions of lesser informed others is a crucial question for historians and "all human understanding".
This receipt of knowledge returns to the idea of the curse proposed by Camerer, Loewenstein, and Weber: a knowledgeable person cannot accurately reconstruct what a person, be it themselves or someone else, without the knowledge would think, or how they would act. This poor reconstruction was theorized by Fischhoff to be because the participant was "anchored in the hindsightful state of mind created by receipt of knowledge".
Study participants could not accurately reconstruct their previous, less knowledgeable states of mind, which directly relates to the curse of knowledge. Research conducted by Fischhoff revealed that participants did not know that their outcome knowledge affected their responses, and, if they did know, they could still not ignore or defeat the effects of the bias. Such research drew from Baruch Fischhoff's work in 1975 surrounding hindsight bias, a cognitive bias that knowing the outcome of a certain event makes it seem more predictable than may actually be true. The aim of their research was to counter the "conventional assumptions in such (economic) analyses of asymmetric information in that better-informed agents can accurately anticipate the judgement of less-informed agents". The term "curse of knowledge" was coined in a 1989 Journal of Political Economy article by economists Colin Camerer, George Loewenstein, and Martin Weber.
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