Optimal beliefs in the long run: An overlapping generations perspective
People have the natural tendency to be optimistic and believe that good outcomes in the future are more likely, but also want to avoid overestimation that could result in bad decision-making. Brunnermeier, Brunnermeier and Parker (2005) and Brunnermeier et al. (2007) established an optimal beliefs framework that balances these two incentives. This paper follows and extends the optimal beliefs framework to consider optimal beliefs in the long run in an overlapping generations sense. Assuming no short-selling, results show that, in almost all cases, there does not exist a stable and interior long-term optimal belief.
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- Brunnermeier, Markus K & Parker, Jonathan A, 2004.
CEPR Discussion Papers
4656, C.E.P.R. Discussion Papers.
- Markus K. Brunnermeier & Jonathan A. Parker, 2004. "Optimal Expectations," NBER Working Papers 10707, National Bureau of Economic Research, Inc.
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- Markus K. Brunnermeier & Jonathan A. Parker, 2002. "Optimal Expectations," Working Papers 146, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics.
- Markus K. Brunnermeier & Jonathan A. Parker, 2002. "Optimal expectations," LSE Research Online Documents on Economics 24954, London School of Economics and Political Science, LSE Library.
- Markus K. Brunnermeier & Jonathan A. Parker & Christian Gollier, 2007.
"Optimal Beliefs, Asset Prices, and the Preference for Skewed Returns,"
American Economic Review,
American Economic Association, vol. 97(2), pages 159-165, May.
- Brunnermeier, Markus & Gollier, Christian & Parker, Jonathan, 2007. "Optimal Beliefs, Asset Prices, and the Preference for Skewed Returns," IDEI Working Papers 429, Institut d'Économie Industrielle (IDEI), Toulouse.
- Brunnermeier, Markus K & Gollier, Christian & Parker, Jonathan A, 2007. "Optimal Beliefs, Asset Prices and the Preference for Skewed Returns," CEPR Discussion Papers 6181, C.E.P.R. Discussion Papers.
- Markus K. Brunnermeier & Christian Gollier & Jonathan A. Parker, 2007. "Optimal Beliefs, Asset Prices, and the Preference for Skewed Returns," NBER Working Papers 12940, National Bureau of Economic Research, Inc.
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