IDEAS home Printed from https://ideas.repec.org/p/usi/depfid/0909.html
   My bibliography  Save this paper

Self-serving biased reference points

Author

Listed:
  • Andrea Gallice

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.

Suggested Citation

  • Andrea Gallice, 2009. "Self-serving biased reference points," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 0909, Department of Economic Policy, Finance and Development (DEPFID), University of Siena.
    • Handle: RePEc:usi:depfid:0909
    as

    Download full text from publisher

    File URL: http://repec.deps.unisi.it/depfid/text909.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bruno Heyndels & John Ashworth, 2003. "Self–Serving Bias in Tax Perceptions: Federalism as a Source of Political Instability," Kyklos, Wiley Blackwell, vol. 56(1), pages 47-68, February.
    2. Linda Babcock & George Loewenstein, 1997. "Explaining Bargaining Impasse: The Role of Self-Serving Biases," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 109-126, Winter.
    3. Botond Kőszegi & Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1133-1165.
    4. B. Douglas Bernheim & Antonio Rangel, 2005. "Behavioral Public Economics: Welfare and Policy Analysis with Non-Standard Decision-Makers," NBER Working Papers 11518, National Bureau of Economic Research, Inc.
    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. Babcock, Linda, et al, 1995. "Biased Judgments of Fairness in Bargaining," American Economic Review, American Economic Association, vol. 85(5), pages 1337-1343, December.
    7. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    8. Eric Langlais, 2008. "Asymmetric information, self-serving bias and the pretrial negotiation impasse," EconomiX Working Papers 2008-30, University of Paris Nanterre, EconomiX.
    9. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
    10. 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.
    11. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Andrea Gallice, 2022. "Bankruptcy Problems with Self-Serving Biased Reference Points," Carlo Alberto Notebooks 683 JEL Classification: D, Collegio Carlo Alberto.
    2. Andrea Gallice, 2012. "Strategic Announcements of Reference Points in Disputes and Litigations," Working papers 003, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    3. Yusuke Mori, 2013. "A Formal Behavioral Model of Firm Boundaries: Why Does Authority Relation Mitigate Ex Post Adaptation Problems?," ISER Discussion Paper 0863, Institute of Social and Economic Research, Osaka University.
    4. Andrea Gallice, 2020. "Self-Serving Biased Reference Points in Bankruptcy Problems," Working papers 067, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    5. Husnain Fateh Ahmad, 2020. "Self serving reference points in k−double auctions," Bulletin of Economic Research, Wiley Blackwell, vol. 72(1), pages 77-85, January.
    6. Mori, Yusuke & 森, 祐介, 2012. "How Can Integration Reduce Inefficiencies Due to Ex Post Adaptation?," Working Paper Series 142, Center for Japanese Business Studies (HJBS), Graduate School of Commerce and Management Hitotsubashi University.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andrea Gallice, 2022. "Bankruptcy Problems with Self-Serving Biased Reference Points," Carlo Alberto Notebooks 683 JEL Classification: D, Collegio Carlo Alberto.
    2. Andrea Gallice, 2020. "Self-Serving Biased Reference Points in Bankruptcy Problems," Working papers 067, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    3. Andrea Gallice, 2012. "Strategic announcements of reference points in disputes and litigations," Carlo Alberto Notebooks 279, Collegio Carlo Alberto.
    4. Cédric Argenton & Xiaoyu Wang, 2023. "Litigation and settlement under loss aversion," European Journal of Law and Economics, Springer, vol. 56(2), pages 369-402, October.
    5. Husnain Fateh Ahmad, 2020. "Self serving reference points in k−double auctions," Bulletin of Economic Research, Wiley Blackwell, vol. 72(1), pages 77-85, January.
    6. Merlone, Ugo & Lupano, Matteo, 2022. "Third party funding: The minimum claim value," European Journal of Operational Research, Elsevier, vol. 296(2), pages 738-747.
    7. Bazerman, Max H. & Sezer, Ovul, 2016. "Bounded awareness: Implications for ethical decision making," Organizational Behavior and Human Decision Processes, Elsevier, vol. 136(C), pages 95-105.
    8. Fosgerau, Mogens, 2008. "Hedonic preferences, symmetric loss aversion and the willingness to pay-willingness to accept gap," MPRA Paper 10041, University Library of Munich, Germany.
    9. Nathalie Chappe & Raphaël Giraud, 2013. "Confidence, Optimism and Litigation: A Litigation Model under Ambiguity," Working Papers 2013-05, CRESE.
    10. Hong Luo & Julie Holland Mortimer, 2017. "Copyright Enforcement: Evidence from Two Field Experiments," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(2), pages 499-528, June.
    11. Lindsey, Robin, 2011. "State-dependent congestion pricing with reference-dependent preferences," Transportation Research Part B: Methodological, Elsevier, vol. 45(10), pages 1501-1526.
    12. Alex Lehr & Jana Vyrastekova & Agnes Akkerman & René Torenvlied, 2018. "Horizontal and vertical spillovers in wage bargaining: A theoretical framework and experimental evidence," Rationality and Society, , vol. 30(1), pages 3-53, February.
    13. Yoshio Kamijo & Koji Yokote, 2022. "Behavioral bargaining theory: Equality bias, risk attitude, and reference-dependent utility," Working Papers 2208, Waseda University, Faculty of Political Science and Economics.
    14. Teck H. Ho & Noah Lim & Colin Camerer, 2005. "Modeling the Psychology of Consumer and Firm Behavior with Behavioral Economics," Levine's Bibliography 784828000000000476, UCLA Department of Economics.
    15. Ernst Fehr & Oliver Hart & Christian Zehnder, 2011. "Contracts as Reference Points--Experimental Evidence," American Economic Review, American Economic Association, vol. 101(2), pages 493-525, April.
    16. Andrea Gallice, 2019. "Bankruptcy problems with reference-dependent preferences," International Journal of Game Theory, Springer;Game Theory Society, vol. 48(1), pages 311-336, March.
    17. Yang, Erya, 2020. "Optimism and pessimism in bargaining and contests," International Review of Law and Economics, Elsevier, vol. 64(C).
    18. Ernst Fehr & Oliver Hart & Christian Zehnder, 2008. "Contracts as reference points � experimental evidence," IEW - Working Papers 393, Institute for Empirical Research in Economics - University of Zurich.
    19. Oliver Hart & John Moore, 2008. "Contracts as Reference Points," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(1), pages 1-48.
    20. Kovach, Matthew, 2020. "Twisting the truth: foundations of wishful thinking," Theoretical Economics, Econometric Society, vol. 15(3), July.

    More about this item

    Keywords

    Self-Serving Bias; Reference Dependent Preferences; Optimal Allocation.;
    All these keywords.

    JEL classification:

    • D00 - Microeconomics - - General - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:usi:depfid:0909. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Carlo Zappia (email available below). General contact details of provider: https://edirc.repec.org/data/dpsieit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.