Second-Best Considerations in Correcting Cognitive Biases

Duke University, Economics Working Paper No. 01-08

16 Pages Posted: 2 May 2003  

Gregory Besharov

Duke University, Fuqua School of Business-Economics Group

Date Written: November 2002

Abstract

Studies in psychology and behavioral economics have found that decision-making is replete with cognitive biases. Using stylized examples of time inconsistency, regret, and overconfidence, this paper demonstrates how biases may offset each other and lead to correct decisions. If only some biases are known, even correction of all known biases has ambiguous effects. With costly correction, the presence of some biases may be optimal. Further, if the correct decision is unknown, then the presence of biases does not imply that decision-making is suboptimal.

Keywords: second best, cognitive bias

JEL Classification: A12, D60

Suggested Citation

Besharov, Gregory, Second-Best Considerations in Correcting Cognitive Biases (November 2002). Duke University, Economics Working Paper No. 01-08. Available at SSRN: https://ssrn.com/abstract=381300 or http://dx.doi.org/10.2139/ssrn.381300

Gregory Mark Besharov (Contact Author)

Duke University, Fuqua School of Business-Economics Group ( email )

Box 90097
208 Social Sciences
Durham, NC 27708-0097
United States
(919) 660-1809 (Phone)
(919) 684-8974 (Fax)

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