Second-Best Considerations in Correcting Cognitive Biases

Studies in psychology and behavioral economics have found that decision-making is replete with cognitive biases. Using examples of time inconsistency, regret, and overconfidence, this article investigates the implications for correcting biases of how they may offset each other. If only some biases are known, even correction of all known biases has ambiguous effects. With costly correction, the presence of some biases may be optimal. Further, if the correct decision is unknown, then the presence of biases does not imply that decision-making is suboptimal.