Complementarity of behavioral biases |
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Authors: | Toru Suzuki |
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Institution: | (1) UWIC, Cardiff, UK |
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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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Keywords: | |
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