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Non-Additivity of Subjective Expectations over Different Time Intervals

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Listed:
  • Peter Haan
  • Chen Sun
  • Uwe Sunde
  • Georg Weizsäcker

Abstract

We examine the additivity of stock-market expectations over different time intervals. When asked about a ten-year interval, survey respondents expect a stock-price change that is not equal to, but closer to zero than, the sum of their expectations over two shorter time intervals that cover the same ten years. Such sub-additivity is irrational in that it cannot stem from aggregating short-term expectations. Model estimates show that the pattern is consistent with a time perception where shorter time intervals have a proportionally larger weight. We also find that the respondents’ degree of additivity is correlated with making larger financial investments.

Suggested Citation

  • Peter Haan & Chen Sun & Uwe Sunde & Georg Weizsäcker, 2022. "Non-Additivity of Subjective Expectations over Different Time Intervals," Discussion Papers of DIW Berlin 2027, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp2027
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    References listed on IDEAS

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    More about this item

    Keywords

    Expectation formation; time perception; sub-additivity; super-additivity;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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