Bayesian optimism

Nick Saponara ()
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Nick Saponara: Boston University

Economic Theory, 2018, vol. 66, issue 2, No 5, 375-406

Abstract: Abstract Theories of optimism typically hypothesize that optimism is driven by agents changing their beliefs or view of the world. In this paper, we hypothesize that agents maintain their view of the world, but arrive at an optimistic belief by distorting the information used to update beliefs in a motivated way. We behaviorally identify the information used to update beliefs, which may be a distortion of the information the analyst observes. Given this identification, we provide a novel behavioral definition of optimism that alters Dynamic Consistency to account for both the distorted information and the optimistic nature of the distortion.

Keywords: Optimism; Non-Bayesian updating; Motivated reasoning; Subjective information (search for similar items in EconPapers)
JEL-codes: D81 D83 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s00199-017-1064-x

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