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On the behavioral consequences of reverse causality

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  • Spiegler, Ran

Abstract

Reverse causality is a common attribution error that distorts the evaluation of private actions and public policies. This paper explores the implications of this error when a decision maker acts on it and therefore affects the very statistical regularities from which he draws faulty inferences. Applying the Bayesian-network approach of Spiegler (2016), I explore the equilibrium effects of a certain class of reverse-causality errors, in the context of an example with a quadratic-normal parameterization. I show that the decision context may protect the decision maker from his own reverse-causality error. That is, the cost of reverse-causality errors can be lower for everyday decision makers than for an outside observer who evaluates their choices.

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  • Spiegler, Ran, 2022. "On the behavioral consequences of reverse causality," European Economic Review, Elsevier, vol. 149(C).
    • Handle: RePEc:eee:eecrev:v:149:y:2022:i:c:s0014292122001520
    DOI: 10.1016/j.euroecorev.2022.104258
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    References listed on IDEAS

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    1. In-Koo Cho & Kenneth Kasa, 2015. "Learning and Model Validation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(1), pages 45-82.
    2. Susan Athey & Andrew Atkeson & Patrick J. Kehoe, 2005. "The Optimal Degree of Discretion in Monetary Policy," Econometrica, Econometric Society, vol. 73(5), pages 1431-1475, September.
    3. Ignacio Esponda & Demian Pouzo, 2016. "Berk–Nash Equilibrium: A Framework for Modeling Agents With Misspecified Models," Econometrica, Econometric Society, vol. 84, pages 1093-1130, May.
    4. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    5. Schumacher, Heiner & Thysen, Heidi Christina, 2022. "Equilibrium contracts and boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 17(1), January.
    6. Kfir Eliaz & Ran Spiegler & Yair Weiss, 2021. "Cheating with Models," American Economic Review: Insights, American Economic Association, vol. 3(4), pages 417-434, December.
    7. Ran Spiegler, 2016. "Bayesian Networks and Boundedly Rational Expectations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(3), pages 1243-1290.
    8. Ran Spiegler, 2020. "Can Agents with Causal Misperceptions be Systematically Fooled?," Journal of the European Economic Association, European Economic Association, vol. 18(2), pages 583-617.
    9. Ran Spiegler, 2020. "Behavioral Implications of Causal Misperceptions," Annual Review of Economics, Annual Reviews, vol. 12(1), pages 81-106, August.
    10. Pickett, Kate E. & Wilkinson, Richard G., 2015. "Income inequality and health: A causal review," Social Science & Medicine, Elsevier, vol. 128(C), pages 316-326.
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    Cited by:

    1. Ran Spiegler, 2023. "Behavioral Causal Inference," Papers 2305.18916, arXiv.org.

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