Optimal Illusion of Control and Related Perception Biases

CERGE-EI Working Paper Series No. 571

43 Pages Posted: 13 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)

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 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.

Suggested Citation

Gossner, Olivier and Steiner, Jakub, Optimal Illusion of Control and Related Perception Biases (September 1, 2016). CERGE-EI Working Paper Series No. 571, Available at SSRN: https://ssrn.com/abstract=2837353 or http://dx.doi.org/10.2139/ssrn.2837353

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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