Calibrating Behavioral Parameters with Large Language Models

Brandon Yee and Krishna Sharma

Papers from arXiv.org

Abstract: Behavioral parameters such as loss aversion, herding, and extrapolation are central to asset pricing models but remain difficult to measure reliably. We develop a framework that treats large language models (LLMs) as calibrated measurement instruments for behavioral parameters. Using four models and 24{,}000 agent--scenario pairs, we document systematic rationality bias in baseline LLM behavior, including attenuated loss aversion, weak herding, and near-zero disposition effects relative to human benchmarks. Profile-based calibration induces large, stable, and theoretically coherent shifts in several parameters, with calibrated loss aversion, herding, extrapolation, and anchoring reaching or exceeding benchmark magnitudes. To assess external validity, we embed calibrated parameters in an agent-based asset pricing model, where calibrated extrapolation generates short-horizon momentum and long-horizon reversal patterns consistent with empirical evidence. Our results establish measurement ranges, calibration functions, and explicit boundaries for eight canonical behavioral biases.

Date: 2026-02
References: Add references at CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2602.01022 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2602.01022

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().