Why does misinformation persist, and how does it distort the long-run beliefs and actions of rational agents? Suppose receivers see an infinite stream of messages from a sender of unknown type who observes private signals about an unknown state of the world. We characterize the conditions for “doublespeak” equilibria where one sender type repeatedly reveals each private signal truthfully but another sender type repeatedly fabricates...

Why do individuals interpret the same information differently? We propose that individuals follow Bayes' Rule when forming posteriors with one exception: when assessing the credibility of signal sources, they "double-dip" the data and use already updated beliefs instead of their priors. Individuals who make this mistake either over- or underreact to new information depending on the order in which they received previous signals. Traders engage in excessive...