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Precision May Harm: The Comparative Statics of Imprecise Judgement

Author

Listed:
  • Sean Horan

    (University of Montreal
    CIREQ)

  • Paola Manzini

    (Department of Economics, University of Sussex, Brighton, UK
    IZA)

  • Marco Mariotti

    (Queen Mary University of London)

Abstract

We consider an agent whose information about the objects of choice is imperfect in two respects: first, their values are perceived with error; and, second, the realised values cannot be discriminated with absolute precision. Reasons for imprecise discrimination include limitations in sensory perception, memory function, or the technology that experts use to communicate with decision-makers. We study the effect of increasing precision on the quality of decision-making. When values are perceived without error, more precision is unambiguously beneficial. We show that this ceases to be true when values are perceived with error. As a practical implication, our results establish conditions where it is counter-productive for an expert to use a finer signalling scheme to communicate with a decision-maker.

Suggested Citation

  • Sean Horan & Paola Manzini & Marco Mariotti, 2018. "Precision May Harm: The Comparative Statics of Imprecise Judgement," Working Paper Series 1518, Department of Economics, University of Sussex Business School.
    • Handle: RePEc:sus:susewp:1518
    as

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    File URL: http://www.sussex.ac.uk/economics/documents/wps-15-2018.pdf
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    References listed on IDEAS

    as
    1. Christopher Burton, 2012. "Heavy Tailed Distributions of Effect Sizes in Systematic Reviews of Complex Interventions," PLOS ONE, Public Library of Science, vol. 7(3), pages 1-7, March.
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    3. David J. Butler & Graham C. Loomes, 2007. "Imprecision as an Account of the Preference Reversal Phenomenon," American Economic Review, American Economic Association, vol. 97(1), pages 277-297, March.
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    5. Butler, David & Loomes, Graham, 2011. "Imprecision as an account of violations of independence and betweenness," Journal of Economic Behavior & Organization, Elsevier, vol. 80(3), pages 511-522.
    6. Oben K. Bayrak & John D. Hey, 2017. "Expected utility theory with imprecise probability perception: explaining preference reversals," Applied Economics Letters, Taylor & Francis Journals, vol. 24(13), pages 906-910, July.
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    More about this item

    Keywords

    stochastic choice; imprecise perception;

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

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