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Behavioral biases and representative agent

Author

Listed:
  • Elyès Jouini

    () (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

  • Clotilde Napp

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique, DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

Abstract

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.

Suggested Citation

  • Elyès Jouini & Clotilde Napp, 2012. "Behavioral biases and representative agent," Post-Print halshs-00550229, HAL.
  • Handle: RePEc:hal:journl:halshs-00550229
    DOI: 10.1007/s11238-011-9274-3
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00550229
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    File URL: https://halshs.archives-ouvertes.fr/halshs-00550229/document
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    Cited by:

    1. repec:spr:annopr:v:262:y:2018:i:2:d:10.1007_s10479-016-2127-2 is not listed on IDEAS
    2. repec:dau:papers:123456789/13098 is not listed on IDEAS

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    Keywords

    Behavioral agent; probability weighting function; representative agent;

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