Complementarity of behavioral biases

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Journal Article
Theory and Decision, 2012, 72 (3), pp. 413 - 430
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I investigate the complementarity of behavioral biases in a simple invest- ment problem. The agent has incomplete knowledge about the correlation between fitness and the decision environment. Nature endows the agent with a decision pro- cedure 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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