Document Type
Article
Publication Date
11-2-2016
Abstract
A tenet of behavioral economics is that biases are systematic and should have visible effects in economic applications. Expected utility maximization has been widely applied in economic analysis, but progress has been slower incorporating 'systematically biased' agents into applications involving risk. This contrasts with the widespread application of present-biased preferences in intertemporal settings. To address this gap, we advocate a model of quasi-rank dependent probability weighting as a natural analog to quasi-hyperbolic discounting for decisions under risk. The model satisfies stochastic dominance and transitivity and transforms individual rather than cumulative probabilities. We illustrate the model’s tractability in several economic applications.
Recommended Citation
Schneider, M. (2016). Economic analysis with systematically biased agents. ESI Working Paper 16-28. Retrieved from http://digitalcommons.chapman.edu/esi_working_papers/206/
Comments
Working Paper 16-28