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Non-Additivity of Subjective Expectations over Different Time Intervals

Peter Haan, Chen Sun, Uwe Sunde and Georg Weizsäcker
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Peter Haan: FU Berlin and DIW Berlin
Chen Sun: HU Berlin

No 337, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: We examine the additivity of stock-market expectations over different time intervals. When asked about a ten-year interval, survey respondents expect a stock-price change that is not equal to, but closer to zero than, the sum of their expectations over two shorter time intervals that cover the same ten years. Such sub-additivity is irrational in that it cannot stem from aggregating short-term expectations. Model estimates show that the pattern is consistent with a time perception where shorter time intervals have a proportionally larger weight. We also find that the respondents’ degree of additivity is correlated with making larger financial investments.

Keywords: expectation formation; time perception; sub-additivity; super-additivity (search for similar items in EconPapers)
JEL-codes: D01 D14 D84 (search for similar items in EconPapers)
Date: 2022-09-09
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Working Paper: Non-Additivity of Subjective Expectations over Different Time Intervals (2022) Downloads
Working Paper: Non-Additivity of Subjective Expectations over Different Time Intervals (2022) Downloads
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