Self-serving biased reference points

Andrea Gallice

No 223, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: This paper formalizes the pervasive phenomenon of the self-serving bias within the framework of reference dependent preferences. This formulation allows the stating of a simple rule to assess the existence of the bias at the aggregate level as well as a procedure that identifies the minimum number of biased agents. We apply the model to two standard situations: a litigation between a plaintiff and a defendant and a bankruptcy problem. In the litigation case, we show how the combination of self-serving bias and reference dependent preferences increases the likelihood that a dispute proceeds to trial. In the bankruptcy case, we show how the existence of individuals with self-serving biased reference points exacerbates the conflict between equity and efficiency of the final allocation.

Keywords: self-serving bias; reference dependent preferences; litigation; trial vs settlement; bankruptcy problem; optimal allocation (search for similar items in EconPapers)
JEL-codes: D03 D63 K41 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Self-serving biased reference points (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:223

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