Myopia and Anchoring

George-Marios Angeletos and Zhen Huo

American Economic Review, 2021, vol. 111, issue 4, 1166-1200

Abstract: We develop an equivalence between the equilibrium effects of incomplete information and those of two behavioral distortions: myopia, or extra discounting of the future; and anchoring of current behavior to past behavior, as in models with habit persistence or adjustment costs. We show how these distortions depend on higher-order beliefs and GE mechanisms, and how they can be disciplined by evidence on expectations. We finally illustrate the use of our toolbox with a quantitative application in the context of inflation, a bridge to the HANK literature, and an extension to networks.

JEL-codes: C53 D83 D85 E12 E31 E37 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (25)

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Working Paper: Myopia and Anchoring (2018)
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DOI: 10.1257/aer.20191436

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