A Bias Aggregation Theorem
Mark Schneider ()
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Mark Schneider: University of Alabama
Working Papers from Chapman University, Economic Science Institute
In a market where some traders are rational (maximize expected utility) and others are systematically biased (deviate from expected utility due to some bias parameter, ?), do equilibrium prices necessarily depend on ?? In this note, focusing on the case where there is an aggregate and systematic bias inthe population, we show that market prices can still be unbiased. Hence, we establish that systematically biased agents do not necessarily imply biased market prices. We show that the parametric model we use also predicts observed deviations from expected utility in laboratory and market environments.
Keywords: Risk aversion; Expected utility; Bias Aggregation (search for similar items in EconPapers)
JEL-codes: D81 D90 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:19-03
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