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A Bias Aggregation Theorem

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  • Mark Schneider

    (University of Alabama)

Abstract

In a market where some traders are rational (maximize expected utility) and others are systematically biased (deviate from expected utility due to some bias parameter, ?), do equilibrium prices necessarily depend on ?? In this note, focusing on the case where there is an aggregate and systematic bias inthe population, we show that market prices can still be unbiased. Hence, we establish that systematically biased agents do not necessarily imply biased market prices. We show that the parametric model we use also predicts observed deviations from expected utility in laboratory and market environments.

Suggested Citation

  • Mark Schneider, 2019. "A Bias Aggregation Theorem," Working Papers 19-03, Chapman University, Economic Science Institute.
    • Handle: RePEc:chu:wpaper:19-03
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    File URL: https://digitalcommons.chapman.edu/esi_working_papers/260/
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    More about this item

    Keywords

    Risk aversion; Expected utility; Bias Aggregation;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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