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On the cost of misperception: general results and behavioural applications

Gossner, Olivier and Steiner, Jakub (2018) On the cost of misperception: general results and behavioural applications. Journal of Economic Theory, 177. pp. 816-847. ISSN 0022-0531

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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 behavioural and psychological literatures. We include illusion of control, order effect, overprecision, and overweighting of small probabilities as illustrative examples.

Item Type: Article
Official URL: https://www.sciencedirect.com/journal/journal-of-e...
Additional Information: © 2018 Elsevier Inc.
Divisions: Mathematics
Subjects: H Social Sciences > HB Economic Theory
Q Science > QA Mathematics
Sets: Departments > Mathematics
Date Deposited: 13 Aug 2018 14:40
Last Modified: 05 Jul 2019 10:27
Projects: ANR-11-IDEX-0003/LabEx Ecodec/ANR-11-LABX-0047, 16-00703S, 770652
Funders: French National Research Agency, Czech Academy of Sciences, GACR, European Research Council
URI: http://eprints.lse.ac.uk/id/eprint/89837

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