Wishful Thinking

Andrew Caplin and John Leahy

No 25707, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We model agents who get utility from their beliefs and therefore interpret information optimistically. They may exhibit several biases observed in psychological studies such as optimism, procrastination, confirmation bias, polarization, and the endowment effect. In some formulations, they exhibit these biases even though they are subjectively Bayesian. We argue that wishful thinking can lead to reduced saving, can make possible information-based trade, and can generate asset bubbles.

JEL-codes: D84 D91 E03 E71 (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-mic and nep-upt
Note: EFG ME
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