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Optimal Strategic Beliefs

Jouini, Elyès; Napp, Clotilde (2009), Optimal Strategic Beliefs. https://basepub.dauphine.fr/handle/123456789/3980

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Type
Document de travail / Working paper
Date
2009
Publisher
Université Paris-Dauphine
Published in
Paris
Pages
22
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Author(s)
Jouini, Elyès
Napp, Clotilde cc
Abstract (EN)
We provide a discipline for belief formation through a model of subjective beliefs, in which agents hold incorrect but 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. We find that strategic behaviour leads to belief subjectivity and heterogeneity. Optimism (resp. overconfidence) as well as pessimism (resp. doubt) both emerge as optimal beliefs. Furthermore, we obtain a positive correlation between pessimism (resp. doubt) and risk-tolerance.
Subjects / Keywords
distorded beliefs; optimal beliefs; strategic beliefs; beliefs formation
JEL
D03 - Behavioral Microeconomics: Underlying Principles
G12 - Asset Pricing; Trading Volume; Bond Interest Rates
D84 - Expectations; Speculations
D81 - Criteria for Decision-Making under Risk and Uncertainty