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Rationally Biased Learning

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  • Michel de Lara

    () (CERMICS - Centre d'Enseignement et de Recherche en Mathématiques et Calcul Scientifique - ENPC - École des Ponts ParisTech)

Abstract

Are human perception and decision biases grounded in a form of rationality? You return to your camp after hunting or gathering. You see the grass moving. You do not know the probability that a snake is in the grass. Should you cross the grass — at the risk of being bitten by a snake — or make a long, hence costly, detour? Based on this storyline, we consider a rational decision maker maximizing expected discounted utility with learning. We show that his optimal behavior displays three biases: status quo, salience, overestimation of small probabilities. Biases can be the product of rational behavior.

Suggested Citation

  • Michel de Lara, 2017. "Rationally Biased Learning," Working Papers hal-01581982, HAL.
  • Handle: RePEc:hal:wpaper:hal-01581982
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01581982
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    File URL: https://hal.archives-ouvertes.fr/hal-01581982/document
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    References listed on IDEAS

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    1. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
    2. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    3. Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, vol. 9(2), pages 185-202, October.
    4. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
    5. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    6. Samuelson, William & Zeckhauser, Richard, 1988. "Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 7-59, March.
    7. Monica Brezzi & Tze Leung Lai, 2000. "Incomplete Learning from Endogenous Data in Dynamic Allocation," Econometrica, Econometric Society, vol. 68(6), pages 1511-1516, November.
    8. Arthur J. Robson, 2001. "Why Would Nature Give Individuals Utility Functions?," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 900-929, August.
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    More about this item

    Keywords

    status quo bias; salience bias; overestimation of small probabilities; optimal behavior;

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