Informational Limits behind the Puzzle

Woongki Lee
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Woongki Lee: Yonsei University

No kghzv_v1, SocArXiv from Center for Open Science

Abstract: Some level of consumption is indispensable for survival. Human well-being, however, depends not only on present consumption but also on the expectation that consumption can be sustained in the future. Traditional economic models do not fully capture this forward-looking psychological dimension. This study revises the standard utility specification by incorporating expectation-based satisfaction. It also recognizes that consumers predict their own future consumption better than researchers do. Because utility depends directly on these private predictions, informational asymmetry matters for empirical asset pricing. The study shows how accounting for this asymmetry can help explain empirically high equity premia and low risk-free rates.

Date: 2026-08-05
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Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:kghzv_v1

DOI: 10.31219/osf.io/kghzv_v1

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