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Self-serving biased reference points

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  • Andrea Gallice

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Abstract

The paper formalizes the pervasive phenomenon of the self-serving bias within the framework of reference dependent preferences. This formulation allows to state 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. As an application, we study the problem of the optimal allocation of a scarce resource among a finite number of claimants. We analyze the performance of different welfare criteria and show how the existence of self-serving biased individuals exacerbates the conflict between equity and efficiency of the final allocation.

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Bibliographic Info

Paper provided by Department of Economic Policy, Finance and Development (DEPFID), University of Siena in its series Department of Economic Policy, Finance and Development (DEPFID) University of Siena with number 0909.

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Date of creation: Nov 2009
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Handle: RePEc:usi:depfid:0909

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For corrections or technical questions regarding this item, or to correct its listing, contact: (Carlo Zappia).

Related research

Keywords: Self-Serving Bias; Reference Dependent Preferences; Optimal Allocation.;

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References

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  1. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
  2. Thomson, William, 2003. "Axiomatic and game-theoretic analysis of bankruptcy and taxation problems: a survey," Mathematical Social Sciences, Elsevier, vol. 45(3), pages 249-297, July.
  3. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  4. B. Douglas Bernheim & Antonio Rangel, 2005. "Behavioral Public Economics: Welfare and Policy Analysis with Non-Standard Decision-Makers," Discussion Papers 04-033, Stanford Instititute for Economic Policy Research.
  5. Farmer, Amy & Pecorino, Paul, 2002. "Pretrial bargaining with self-serving bias and asymmetric information," Journal of Economic Behavior & Organization, Elsevier, vol. 48(2), pages 163-176, June.
  6. Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, MIT Press, vol. 121(4), pages 1133-1165, November.
  7. Babcock, Linda, et al, 1995. "Biased Judgments of Fairness in Bargaining," American Economic Review, American Economic Association, vol. 85(5), pages 1337-43, December.
  8. Eric Langlais, 2008. "Asymmetric information, self-serving bias and the pretrial negotiation impasse," EconomiX Working Papers 2008-30, University of Paris West - Nanterre la Défense, EconomiX.
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Cited by:
  1. Andrea Gallice, 2012. "Strategic Announcements of Reference Points in Disputes and Litigations," Working papers of the Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche) 3, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.

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