A Target-Based Foundation for the 'Hard-Easy Effect' Bias

16 Pages Posted: 23 Oct 2014

See all articles by Robert Bordley

Robert Bordley

University of Michigan at Ann Arbor

Marco LiCalzi

Dept. Management, Università Ca' Foscari Venezia

Luisa Tibiletti

University of Turin - Department of Management

Date Written: October 2014

Abstract

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

Bordley, Robert and LiCalzi, Marco and Tibiletti, Luisa, A Target-Based Foundation for the 'Hard-Easy Effect' Bias (October 2014). Department of Management, Università Ca' Foscari Venezia Working Paper No. 2014/23. Available at SSRN: https://ssrn.com/abstract=2513403 or http://dx.doi.org/10.2139/ssrn.2513403

Robert Bordley

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

Marco LiCalzi (Contact Author)

Dept. Management, Università Ca' Foscari Venezia ( email )

San Giobbe, Cannaregio 873
Venice, 30121
Italy
+39-0412346925 (Phone)
+39-0412347444 (Fax)

HOME PAGE: http://venus.unive.it/licalzi/

Luisa Tibiletti

University of Turin - Department of Management ( email )

C.so Unione Sovietica, 218 bis
Turin, Turin 10100
Italy
39-11-670-6229 (Phone)
39-11-670-6238 (Fax)

HOME PAGE: http://www.management.unito.it/tibiletti

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