What is the ostrich effect in simple terms?

It is the urge to look away rather than check when bad news seems likely. Not opening your brokerage account when the stock market is falling is the classic example.

Is the ostrich effect always bad?

Not necessarily. Checking investment performance too often can lead to overreacting to losses, so checking less may actually help long-term investing. But avoiding important information for too long can delay a needed response.

Ostrich Effect

📈 Economics By CampusDown Wiki Editorial Team Last updated October 27, 2026

The ostrich effect is the tendency to avoid checking information that may contain bad news. It takes its name from the myth that ostriches bury their heads in the sand when danger looms, although real ostriches do not behave that way. Economists Dan Galai and Orly Sade coined the term in a 2006 study of financial markets, and it became widely known through research showing that investors look at their accounts less often when stock prices fall. It is a leading example of research on information avoidance in behavioral economics.

Contents

1. Discovery and evidence from financial markets
2. Theories of information avoidance
3. Not wanting to know, and its limits
4. FAQ
5. References

Discovery and evidence from financial markets

Galai and Sade (2006) proposed the ostrich effect to explain why, in Israeli financial markets, less liquid assets traded at lower yields: investors preferred assets that spared them from checking risk information every day. Analyzing investor data from Sweden and the United States, Karlsson, Loewenstein and Seppi (2009) showed that investors check their accounts often when markets rise but less often when they fall or stagnate. They argued that because looking at information itself affects mood, people direct their attention selectively to avoid making bad news definite. Sicherman and colleagues (2016) confirmed the pattern in login records from hundreds of thousands of US retirement accounts. Olafsson and Pagel (2017), using data from an Icelandic personal finance app, found that people check their accounts more often after payday, when balances are high.

Theories of information avoidance

Traditional economics holds that free information is always better in larger amounts, but behavioral economics recognizes that information directly affects emotions. In a systematic review of information avoidance, Golman, Hagmann and Loewenstein (2017) explained that people refuse even free information to avoid the disappointment of bad news and to preserve positive beliefs. This relates to prospect theory and loss aversion, under which losses loom larger than gains. Benartzi and Thaler (1995) proposed myopic loss aversion: the more often investors evaluate their portfolios, the more often they experience losses and the more they shun risky assets. This suggests the ostrich effect may even help long-term investing. Brunnermeier and Parker's (2005) model of optimal expectations explained that people maintain optimistic beliefs because of the utility they get from anticipation. Sweeny and colleagues (2010) reviewed the motives for information avoidance in psychology, which also connects to the tradition of cognitive dissonance theory.

Not wanting to know, and its limits

Oster, Shoulson and Dorsey (2013) used an optimal expectations model to analyze why people at risk of a hereditary disease tend not to take tests that would reveal the result. Gigerenzer and Garcia-Retamero (2017) reported deliberate ignorance: most adults in Germany and Spain did not want to know about negative future events. Webb, Chang and Benn (2013) noted that the ostrich problem, failing to monitor progress toward goals, undermines self-regulation in areas such as weight management and saving. The ostrich effect reduces anxiety in the short term but can lead people to put off important decisions. Conversely, checking accounts only when markets are good may reinforce optimism bias. Ultimately, the ostrich effect shows that information is not only knowledge but also a source of emotion.

FAQ

What is the ostrich effect in simple terms?: It is the urge to look away rather than check when bad news seems likely. Not opening your brokerage account when the stock market is falling is the classic example.
Is the ostrich effect always bad?: Not necessarily. Checking investment performance too often can lead to overreacting to losses, so checking less may actually help long-term investing. But avoiding important information for too long can delay a needed response.

Sources reviewed: 2026-10-26

References

Festinger, L. (1957). A Theory of Cognitive Dissonance. Stanford: Stanford University Press.
Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263–291.
Benartzi, S., & Thaler, R. H. (1995). Myopic loss aversion and the equity premium puzzle. Quarterly Journal of Economics, 110(1), 73–92.
Brunnermeier, M. K., & Parker, J. A. (2005). Optimal expectations. American Economic Review, 95(4), 1092–1118.
Galai, D., & Sade, O. (2006). The "ostrich effect" and the relationship between the liquidity and the yields of financial assets. Journal of Business, 79(5), 2741–2759.
Karlsson, N., Loewenstein, G., & Seppi, D. (2009). The ostrich effect: Selective attention to information. Journal of Risk and Uncertainty, 38(2), 95–115.
Sweeny, K., Melnyk, D., Miller, W., & Shepperd, J. A. (2010). Information avoidance: Who, what, when, and why. Review of General Psychology, 14(4), 340–353.
Oster, E., Shoulson, I., & Dorsey, E. R. (2013). Optimal expectations and limited medical testing: Evidence from Huntington disease. American Economic Review, 103(2), 804–830.
Webb, T. L., Chang, B. P. I., & Benn, Y. (2013). 'The ostrich problem': Motivated avoidance or rejection of information about goal progress. Social and Personality Psychology Compass, 7(11), 794–807.
Sicherman, N., Loewenstein, G., Seppi, D. J., & Utkus, S. P. (2016). Financial attention. Review of Financial Studies, 29(4), 863–897.
Golman, R., Hagmann, D., & Loewenstein, G. (2017). Information avoidance. Journal of Economic Literature, 55(1), 96–135.
Gigerenzer, G., & Garcia-Retamero, R. (2017). Cassandra's regret: The psychology of not wanting to know. Psychological Review, 124(2), 179–196.
Olafsson, A., & Pagel, M. (2017). The ostrich in us: Selective attention to personal finances. NBER Working Paper No. 23945.

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This article was last updated on October 27, 2026. It is based on widely recognized original works and textbooks; when citing it in a paper, please check the original sources listed in the references.