A Target-Based Foundation for the 'Hard-Easy Effect' Bias
16 Pages Posted: 23 Oct 2014
Date Written: October 2014
The “hard-easy effect” is a well-known cognitive bias on self-confidence calibration that refers to a tendency to overestimate the probability of success in hard-perceived tasks, and to underestimate it in easy-perceived tasks. This paper provides a target-based foundation for this effect, and predicts its occurrence in the expected utility framework when utility functions are S-shaped and asymmetrically tailed. First, we introduce a definition of hard-perceived and easy-perceived task based on the mismatch between an uncertain target to meet and a suitably symmetric reference point. Second, switching from a target-based language to a utility-based language, we show how this maps to an equivalence between the hard-perceived target/gain seeking and the easy perceived target/loss aversion. Third, we characterize the agent’s miscalibration in self-confidence. Finally, we derive sufficient conditions for the “hard-easy effect” and the “reversed hard-easy effect” to hold.
Keywords: Expected utility, Hard-easy effect bias, Endowment effect bias, Sunk cost effect bias, Benchmarking procedure, Loss-gain asymmetry, van Zwet skewness conditions.
JEL Classification: C91; D81
Suggested Citation: Suggested Citation