Censored Beliefs and Wishful Thinking

Jarrod Burgh and Emerson Melo

Papers from arXiv.org

Abstract: We present a model elucidating wishful thinking, which comprehensively incorporates both the costs and benefits associated with biased beliefs. Our findings reveal that wishful thinking behavior can be characterized as equivalent to superquantile-utility maximization within the domain of threshold beliefs distortion cost functions. By leveraging this equivalence, we establish WT as driving decision-makers to exhibit a preference for choices characterized by skewness and increased risk. Furthermore, we discuss how our framework facilitates the study of optimistic stochastic choice and optimistic risk aversion.

Date: 2024-02, Revised 2025-01
New Economics Papers: this item is included in nep-mic, nep-rmg and nep-upt
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