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Censored Beliefs and Wishful Thinking

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  • Jarrod Burgh
  • Emerson Melo

Abstract

We present a model elucidating wishful thinking, which comprehensively incorporates both the costs and benefits associated with biased beliefs. Our findings reveal that wishful thinking behavior can be accurately characterized as equivalent to superquantile-utility maximization within the domain of threshold beliefs distortion cost functions. By leveraging this equivalence, we establish conditions that elucidate when an optimistic decision-maker exhibits a preference for choices characterized by positive skewness and increased risk.

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  • Jarrod Burgh & Emerson Melo, 2024. "Censored Beliefs and Wishful Thinking," Papers 2402.01892, arXiv.org.
    • Handle: RePEc:arx:papers:2402.01892
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