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09/2009

DEPFID Working Paper 9 / 2009 - Abstract

 

Self-serving biased reference points

Andrea Gallice

The paper formalizes the pervasive phenomenon of the self-serving bias within the framework of reference dependent preferences. This formulation allows to state a simple rule to assess the existence of the bias at the aggregate level as well as a procedure that identifies the minimum number of biased agents. As an application, we study the problem of the optimal allocation of a scarce resource among a finite number of claimants. We analyze the performance of different welfare criteria and show how the existence of self-serving biased individuals exacerbates the conflict between equity and efficiency of the final allocation.

KEYWORDS: Self-Serving Bias, Reference Dependent Preferences, Optimal Allocation.
JEL CLASSIFICATION: D00, D60.
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