Complementarity of behavioral biases

Complementarity of behavioral biases

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Article ID: iaor2012645
Volume: 72
Issue: 3
Start Page Number: 413
End Page Number: 430
Publication Date: Mar 2012
Journal: Theory and Decision
Authors:
Keywords: behaviour, decision: rules
Abstract:

I investigate the complementarity of behavioral biases in a simple investment problem. The agent has incomplete knowledge about the correlation between fitness and the decision environment. Nature endows the agent with a decision procedure so that the induced action can reflect this correlation. I show that the agent with this decision procedure always exhibits (i) present biased time preference, (ii) distorted beliefs, and (iii) cognitive dissonance. The three biases are complements and the absence of one of them destroys the value of the other two. The decision procedure also provides insights into the non‐fungibility of savings.

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