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Second‐Best Considerations in Correcting Cognitive Biases

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  • Gregory Besharov

Abstract

Studies in psychology and behavioral economics have found that decision‐making is replete with cognitive biases. Using examples of time inconsistency, regret, and overconfidence, this article investigates the implications for correcting biases of how they may offset each other. If only some biases are known, even correction of all known biases has ambiguous effects. With costly correction, the presence of some biases may be optimal. Further, if the correct decision is unknown, then the presence of biases does not imply that decision‐making is suboptimal.

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  • Gregory Besharov, 2004. "Second‐Best Considerations in Correcting Cognitive Biases," Southern Economic Journal, John Wiley & Sons, vol. 71(1), pages 12-20, July.
    • Handle: RePEc:wly:soecon:v:71:y:2004:i:1:p:12-20
    DOI: 10.1002/j.2325-8012.2004.tb00620.x
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    5. Alan Schwartz, 2008. "How Much Irrationality Does the Market Permit?," The Journal of Legal Studies, University of Chicago Press, vol. 37(1), pages 131-159, January.

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    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • D60 - Microeconomics - - Welfare Economics - - - General

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