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
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)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:177:y:2018:i:c:p:816-847
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