Perceiving Prospects Properly

Jakub Steiner and Colin Stewart

Edinburgh School of Economics Discussion Paper Series from Edinburgh School of Economics, University of Edinburgh

Abstract: When an agent chooses between prospects, noise in information processing generates an effect akin to the winner's curse. Statistically unbiased perception systematically overvalues the chosen action because it fails to account for the possibility that noise is responsible for making the preferred action appear to be optimal. The optimal perception patterns share key features with prospect theory, namely, overweighting of small probability events (and corresponding underweighting of high probability events), status quo bias, and reference-dependent S-shaped valuations. These biases arise to correct for the winner's curse effect.

Pages: 37
Date: 2014-08
New Economics Papers: this item is included in nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.econ.ed.ac.uk/papers/id245_esedps.pdf

Related works:
Journal Article: Perceiving Prospects Properly (2016)
Working Paper: Perceiving Prospects Properly (2014)
Working Paper: Perceiving Prospects Properly (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:edn:esedps:245

Access Statistics for this paper

More papers in Edinburgh School of Economics Discussion Paper Series from Edinburgh School of Economics, University of Edinburgh 31 Buccleuch Place, EH8 9JT, Edinburgh. Contact information at EDIRC.
Bibliographic data for series maintained by Research Office ().