Myopia and Anchoring
- (pp. 1166-1200)
Abstract
We develop an equivalence between the equilibrium effects of incomplete information and those of two behavioral distortions: myopia, or extra discounting of the future; and anchoring of current behavior to past behavior, as in models with habit persistence or adjustment costs. We show how these distortions depend on higher-order beliefs and GE mechanisms, and how they can be disciplined by evidence on expectations. We finally illustrate the use of our toolbox with a quantitative application in the context of inflation, a bridge to the HANK literature, and an extension to networks.Citation
Angeletos, George-Marios, and Zhen Huo. 2021. "Myopia and Anchoring." American Economic Review, 111 (4): 1166-1200. DOI: 10.1257/aer.20191436Additional Materials
JEL Classification
- C53 Forecasting Models; Simulation Methods
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- D85 Network Formation and Analysis: Theory
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian
- E31 Price Level; Inflation; Deflation
- E37 Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications