Evolutionary strategic beliefs and financial markets
We provide a discipline for belief formation through a model of subjective beliefs, in which agents hold strategic beliefs. More precisely, we consider beliefs as a strategic variable that agents can choose (consciously or not) in order to maximize their utility at the equilibrium. These strategic beliefs result from an evolutionary process. We find that evolutionary strategic behavior leads to belief subjectivity and heterogeneity. Optimism (resp. overconfidence) as well as pessimism (resp. doubt) both emerge from the evolution process. Furthermore, we obtain a positive correlation between pessimism (rep. doubt) and risk-tolerance. We analyse the equilibrium characteristics. Under reasonable assumptions, the consensus belief is pessimistic and, as a consequence, the risk premium is higher than in a standard setting.
|Date of creation:||01 Mar 2012|
|Date of revision:|
|Publication status:||Published, Review of Finance, 2012, 1|
|Note:||View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00556490|
|Contact details of provider:|| Web page: http://hal.archives-ouvertes.fr/ |
When requesting a correction, please mention this item's handle: RePEc:hal:journl:halshs-00556490. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)
If references are entirely missing, you can add them using this form.