Optimal Illusion of Control and Related Perception Biases

Olivier Gossner and Jakub Steiner

No 2017-50, Working Papers from Center for Research in Economics and Statistics

Abstract: We study perception biases arising under second-best perception strategies. An agent correctly observes a parameter that is payoff-relevant in many decision problems that she encounters in her environment but is unable to retain all the information until her decision. A designer of the decision process chooses a perception strategy that determines the distribution of the perception errors. If some information loss is unavoidable due to cognition constraints, then (under additional conditions) the optimal perception strategy exhibits the illusion of control, overconfidence, and optimism.

Pages: 43 pages
Date: 2017-10-16
New Economics Papers: this item is included in nep-cbe and nep-mic
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Related works:
Working Paper: Optimal Illusion of Control and Related Perception Biases (2016)
Working Paper: Optimal Illusion of Control and Related Perception Biases (2016)
Working Paper: Optimal Illusion of Control and Related Perception Biases (2016)
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