General Equilibrium Dynamics with Naive and Sophisticated Hyperbolic Consumers in an Overlapping Generations Economy
AbstractUsing an overlapping generations model, this paper describes interactions between naive and sophisticated hyperbolic discounters in general equilibrium. The naifs, who overestimate their future propensity to save and hence over-forecast the future equilibrium asset prices, are exploited through capital transactions by sophisticates, who correctly forecast the future asset prices by incorporating the naifsf mis-forecasts. Due to the capital losses, the naifs fall into bankruptcy when they are highly present-biased, highly patient, and having a low population density. Under generous conditions, the equilibrium is shown to be globally stable and Pareto inefficient in the ex-post sense.
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Bibliographic InfoPaper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0886r.
Date of creation: Sep 2013
Date of revision: Jan 2014
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-01-10 (All new papers)
- NEP-DGE-2014-01-10 (Dynamic General Equilibrium)
- NEP-FOR-2014-01-10 (Forecasting)
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