Replication data for: Optimal Expectations
Principal Investigator(s): View help for Principal Investigator(s) Markus K. Brunnermeier; Jonathan A. Parker
Version: View help for Version V1
Name | File Type | Size | Last Modified |
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Brunnermeier-Parker-Figure2-Mathematica-Code.nb | text/plain | 267.8 KB | 12/06/2019 10:33:AM |
Brunnermeier-Parker-Figure2-Mathematica-Code.pdf | application/pdf | 162.7 KB | 12/06/2019 10:33:AM |
LICENSE.txt | text/plain | 14.6 KB | 12/06/2019 10:33:AM |
ReadMe.pdf | application/pdf | 44.1 KB | 12/06/2019 10:33:AM |
Project Citation:
Brunnermeier, Markus K., and Parker, Jonathan A. Replication data for: Optimal Expectations. Nashville, TN: American Economic Association [publisher], 2005. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-12-06. https://doi.org/10.3886/E116054V1
Project Description
Summary:
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Forward-looking agents care about expected future utility flows, and hence have higher current felicity if they are optimistic. This paper studies utility-based biases in beliefs by supposing that beliefs maximize average felicity, optimally balancing this benefit of optimism against the costs of worse decision making. A small optimistic bias in beliefs typically leads to first-order gains in anticipatory utility and only second-order costs in realized outcomes. In a portfolio choice example, investors overestimate their return and exhibit a preference for skewness; in general equilibrium, investors' prior beliefs are endogenously heterogeneous. In a consumption-saving example, consumers are both overconfident and overoptimistic.
Scope of Project
JEL Classification:
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D84 Expectations; Speculations
D84 Expectations; Speculations
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