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The Misperception of Norms: The Psychology of Bias and the Economics of Equilibrium

Author

Listed:
  • Cooter Robert D

    (UC Berkeley)

  • Feldman Michal

    (Hebrew University of Jerusalem)

  • Feldman Yuval

    (Bar-Ilan University)

Abstract

This study combines the psychology of bias and the economics of equilibrium. We focus on two of the most discussed perceptual biases found by psychologists who studied the role social norms in ethical decision making. First, psychologists found a general tendency of people to over-estimate how many other people engage in unethical behavior. We show that this bias causes more people to violate the norm than if the bias were corrected. Second, psychologists found a general tendency of a person to over-estimate how many other people act the same as he does. We show that this bias does not change the number of people who violate the norm, contrary to the predictions of some psychologists. When a person suffers from both biases, they can augment or undermine each other. In either case, we show that supplying accurate information will cause more people to conform to the norm. In general, we show that applying the equilibrium concept to psychological studies improves public policy recommendations by increasing precision in predicting aggregate behavior over time.

Suggested Citation

  • Cooter Robert D & Feldman Michal & Feldman Yuval, 2008. "The Misperception of Norms: The Psychology of Bias and the Economics of Equilibrium," Review of Law & Economics, De Gruyter, vol. 4(3), pages 889-911, December.
  • Handle: RePEc:bpj:rlecon:v:4:y:2008:i:3:n:7
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    References listed on IDEAS

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    1. Lars P. Feld & Jean-Robert Tyran, 2002. "Why People Obey the Law: Experimental Evidence from the Provision of Public Goods," CESifo Working Paper Series 651, CESifo Group Munich.
    2. Dhammika Dharmapala & Richard H. McAdams, 2005. "Words That Kill? An Economic Model of the Influence of Speech on Behavior (with Particular Reference to Hate Speech)," The Journal of Legal Studies, University of Chicago Press, vol. 34(1), pages 93-136, January.
    3. Wenzel, Michael, 2005. "Misperceptions of social norms about tax compliance: From theory to intervention," Journal of Economic Psychology, Elsevier, vol. 26(6), pages 862-883, December.
    4. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
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    Cited by:

    1. Timo Tammi, 2011. "Contractual preferences and moral biases: social identity and procedural fairness in the exclusion game experiment," Constitutional Political Economy, Springer, vol. 22(4), pages 373-397, December.

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