Optimal Illusion of Control and Related Perception Biases

41 Pages Posted: 6 Sep 2016

See all articles by Olivier Gossner

Olivier Gossner

Ecole Polytechnique, Paris; London School of Economics & Political Science (LSE)

Jakub Steiner

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

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Date Written: August 2016

Abstract

We study perception biases arising under second-best perception strategies. An agent correctly observes a parameter that is payoff-relevant in many decision problems that she encounters in her environment but is unable to retain all the information until her decision. A designer of the decision process chooses a perception strategy that determines the distribution of the perception errors. If some information loss is unavoidable due to cognition constraints, then (under additional conditions) the optimal perception strategy exhibits the illusion of control, overconfidence, and optimism.

Keywords: Information Processing, overconfidence, perception

Suggested Citation

Gossner, Olivier and Steiner, Jakub, Optimal Illusion of Control and Related Perception Biases (August 2016). CEPR Discussion Paper No. DP11478, Available at SSRN: https://ssrn.com/abstract=2834815

Olivier Gossner (Contact Author)

Ecole Polytechnique, Paris ( email )

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London School of Economics & Political Science (LSE) ( email )

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Jakub Steiner

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

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Prague 1, 111 21
Czech Republic
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