Optimal Strategic Beliefs
Jouini, Elyès; Napp, Clotilde (2009), Optimal Strategic Beliefs. https://basepub.dauphine.fr/handle/123456789/3980
TypeDocument de travail / Working paper
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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 / Keywordsdistorded beliefs; optimal beliefs; strategic beliefs; beliefs formation
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