Perceiving prospects properly

0468732 - NHÚ 2017 RIV US eng J - Journal Article
Steiner, Jakub - Stewart, C.
Perceiving prospects properly.
American Economic Review. Roč. 106, č. 7 (2016), s. 1601-1631. ISSN 0002-8282. E-ISSN 1944-7981
Institutional support: RVO:67985998
Keywords : evolution * perception bias * prospect theory
Subject RIV: AH - Economics
Impact factor: 4.026, year: 2016

When an agent chooses between prospects, noise in information processing generates an effect akin to the winner's curse. Statistically unbiased perception systematically overvalues the chosen action because it fails to account for the possibility that noise is responsible for making the preferred action appear to be optimal. The optimal perception pattern exhibits a key feature of prospect theory, namely, overweighting of small probability events (and corresponding underweighting of high probability events). This bias arises to correct for the winner's curse effect.
Permanent Link: http://hdl.handle.net/11104/0266564