Behavioral biases and representative agent
In this paper, we show that behavioral features can be obtained at a group level when the individuals of the group are heterogeneous enough. Starting from a standard model of Pareto optimal allocations, with expected utility maximizers but allowing for heterogeneity among individual beliefs, we show that the representative agent has an inverse S-shaped probability distortion function. As an application of this result, we show that an agent with a probability weighting function as in Cumulative Prospect Theory may be represented as a collection of agents with noisy beliefs.
|Date of creation:||02 Jul 2012|
|Date of revision:|
|Publication status:||Published, Theory and Decision, 2012, 73, 1, 97-123|
|Note:||View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00550229|
|Contact details of provider:|| Web page: http://hal.archives-ouvertes.fr/|
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