American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Myopia and Anchoring
American Economic Review
vol. 111,
no. 4, April 2021
(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