University of Haifa
Naive Experience-Based Calibration
joint with Yair Antler
Benjamin Bachi is a Lecturer (tenure track) at the University of Haifa, Department of Economics. his research interests include Microeconomic Theory, Industrial organization, Bounded Rationality and Behavioral Economics.
Modern managerial decision-making often relieson prediction tools and statistical analysis. For example, credit score modelsare used to assess therisk that a borrowerwould default on his debt. At the same time, these decisionsaffect the data which is availableto the firm. Using a “personal equilibrium” approach, we studythe implications of adjusting prediction tools to the firm’sdata and show that evenwhen these prediction tools are well-calibrated, naıve adjustment results in suboptimal decision-making in the long run. We applyour results to a wide range of contexts, including investment decisions, clinical tests evaluation, and bidding in second price auctions.