When Kahneman meets Manski: making sense of individual expectations on equity returns
AbstractTo understand how decisions to invest in stocks are taken, economists need to elicit expectations relative to expected risk-return trade-oﬀ. One of the few surveys which have included such questions is the Survey of Economic Expectations in 1999-2001. Using this survey, Dominitz and Manski ﬁnd an important heterogeneity across respondents that can hardly be accounted for by simple models of expectations formation. This paper claims that much of the heterogeneity derives from pathologies aﬀecting respondents. Adapting a principle of dual-reasoning borrowed from Kahneman, we classify respondents according to their sensitivity to these pathologies, and ﬁnd a strong homogeneity across the less sensitive respondents. We then sketch a model of expectation formation
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Bibliographic InfoPaper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number hal-00633561.
Date of creation: 2011
Date of revision:
Publication status: Published, Journal of Applied Econometrics, 2011, 26, 3, 371-392
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-01 (All new papers)
- NEP-CBE-2011-11-01 (Cognitive & Behavioural Economics)
- NEP-UPT-2011-11-01 (Utility Models & Prospect Theory)
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