Correlation misperception in choice

Andrew Ellis and Michele Piccione

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We present a decision-theoretic analysis of an agent’s understanding of the interdependencies in her choices. We provide the foundations for a simple and flexible model that allows the misperception of correlated risks. We introduce a framework in which the decision maker chooses a portfolio of assets among which she may misperceive the joint returns, and present simple axioms equivalent to a representation in which she attaches a probability to each possible joint distribution over returns and then maximizes subjective expected utility using her (possibly misspecified) beliefs.

JEL-codes: D11 D81 D83 G11 (search for similar items in EconPapers)
Date: 2017-04-01
New Economics Papers: this item is included in nep-mic and nep-upt
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Citations: View citations in EconPapers (18)

Published in American Economic Review, 1, April, 2017, 107(4), pp. 1264-1292. ISSN: 0002-8282

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Related works:
Journal Article: Correlation Misperception in Choice (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:68326

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