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On the cost of misperception: General results and behavioral applications

Olivier Gossner and Jakub Steiner ()

Journal of Economic Theory, 2018, vol. 177, issue C, 816-847

Abstract: In a choice model, we characterize the loss induced by misperceptions of payoff-relevant parameters across a distribution of decision problems. When the agent cannot avoid misperceptions but has some control over the distribution of errors, we show that strategies that minimize loss from misperception exhibit systematic biases, akin to some documented in the behavioral and psychological literatures. We include illusion of control, order effect, overprecision, and overweighting of small probabilities as illustrative examples.

Keywords: Memory; Bounded rationality; Perception bias; Overconfidence (search for similar items in EconPapers)
JEL-codes: D8 D9 (search for similar items in EconPapers)
Date: 2018
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