Correlation Misperception in Choice
- (pp. 1264-92)
AbstractWe present a decision-theoretic analysis of an agent's understanding of the interdependencies in her choices. We provide the foundations for a simple and flexible model that allows the misperception of correlated risks. We introduce a framework in which the decision maker chooses a portfolio of assets among which she may misperceive the joint returns, and present simple axioms equivalent to a representation in which she attaches a probability to each possible joint distribution over returns and then maximizes subjective expected utility using her (possibly misspecified) beliefs.
Citation2017. "Correlation Misperception in Choice." American Economic Review, 107(4): 1264-92. DOI: 10.1257/aer.20160093
- D11 Consumer Economics: Theory
- D81 Criteria for Decision-Making under Risk and Uncertainty
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- G11 Portfolio Choice; Investment Decisions