Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/252064 
Year of Publication: 
2022
Series/Report no.: 
CESifo Working Paper No. 9547
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
In a model inspired by neuroscience, we show that constrained optimal perception encodes lottery rewards using an S-shaped encoding function and over-samples low-probability events. The implications of this perception strategy for behavior depend on the decision-maker's understanding of the risk. The strategy does not distort choice in the limit as perception frictions vanish when the decision-maker fully understands the decision problem. If, however, the decision-maker underrates the complexity of the decision problem, then risk attitudes reflect properties of the perception strategy even for vanishing perception frictions. The model explains adaptive risk attitudes and probability weighting as in prospect theory and, additionally, predicts that risk attitudes are strengthened by time pressure and attenuated by anticipation of large risks.
Subjects: 
endogenous preferences
probability distortions
misspecified learning
JEL: 
D81
D87
D91
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.