When Kahneman meets Manski: Using dual systems of reasoning to interpret subjective expectations of equity returns

Fabian Gouret and Guillaume Hollard

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Abstract: To understand how decisions to invest in stocks are taken, economists need to elicit expectations relative to expected risk-return trade-off. One of the few surveys which have included such questions is the Survey of Economic Expectations in 1999-2001. Using this survey, Dominitz and Manski find an important heterogeneity across respondents that can hardly be accounted for by simple models of expectations formation. This paper claims that much of the heterogeneity derives from pathologies affecting respondents. Adapting a principle of dual-reasoning borrowed from Kahneman, we classify respondents according to their sensitivity to these pathologies, and find a strong homogeneity across the less sensitive respondents. We then sketch a model of expectation formation.

Keywords: investment funds; Subjective probability distribution; dual system of reasoning; investment funds. (search for similar items in EconPapers)
Date: 2011
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00867700v1
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Citations: View citations in EconPapers (22)

Published in Journal of Applied Econometrics, 2011, 26 (3), pp.371-392

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Journal Article: When Kahneman meets Manski: Using dual systems of reasoning to interpret subjective expectations of equity returns (2011)
Working Paper: When Kahneman meets Manski: Using dual systems of reasoning to interpret subjective expectations of equity returns (2011)
Working Paper: When Kahneman meets Manski: Using dual systems of reasoning to interpret subjective expectations of equity returns (2011)
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