Self-serving biased reference points
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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- Botond Koszegi & Matthew Rabin, 2005.
"A Model of Reference-Dependent Preferences,"
784828000000000341, UCLA Department of Economics.
- Botond Koszegi & Matthew Rabin, 2004. "A Model of Reference-Dependent Preferences," Method and Hist of Econ Thought 0407001, EconWPA.
- Koszegi, Botond & Rabin, Matthew, 2004. "A Model of Reference-Dependent Preferences," Department of Economics, Working Paper Series qt0w82b6nm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- 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.
- B. Douglas Bernheim & Antonio Rangel, 2005. "Behavioral Public Economics: Welfare and Policy Analysis with Non-Standard Decision-Makers," Discussion Papers 04-033, Stanford Institute for Economic Policy Research.
- 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.
- 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.
- Babcock, Linda, et al, 1995. "Biased Judgments of Fairness in Bargaining," American Economic Review, American Economic Association, vol. 85(5), pages 1337-43, December.
- Amos Tversky & Daniel Kahneman, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Levine's Working Paper Archive
7656, David K. Levine.
- Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
- 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.
- 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.
- Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
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