Replication data for: Optimal Expectations

Principal Investigator(s):  View help for Principal Investigator(s) Markus K. Brunnermeier; Jonathan A. Parker

Version:  View help for Version V1

Name File Type Size Last Modified
Brunnermeier-Parker-Figure2-Mathematica-Code.nb text/plain 267.8 KB 12/06/2019 10:33:AM
Brunnermeier-Parker-Figure2-Mathematica-Code.pdf application/pdf 162.7 KB 12/06/2019 10:33:AM
LICENSE.txt text/plain 14.6 KB 12/06/2019 10:33:AM
ReadMe.pdf application/pdf 44.1 KB 12/06/2019 10:33:AM

Project Citation: 

Brunnermeier, Markus K., and Parker, Jonathan A. Replication data for: Optimal Expectations. Nashville, TN: American Economic Association [publisher], 2005. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-12-06. https://doi.org/10.3886/E116054V1

Project Description

Summary:  View help for Summary Forward-looking agents care about expected future utility flows, and hence have higher current felicity if they are optimistic. This paper studies utility-based biases in beliefs by supposing that beliefs maximize average felicity, optimally balancing this benefit of optimism against the costs of worse decision making. A small optimistic bias in beliefs typically leads to first-order gains in anticipatory utility and only second-order costs in realized outcomes. In a portfolio choice example, investors overestimate their return and exhibit a preference for skewness; in general equilibrium, investors' prior beliefs are endogenously heterogeneous. In a consumption-saving example, consumers are both overconfident and overoptimistic.

Scope of Project

JEL Classification:  View help for JEL Classification
      D84 Expectations; Speculations


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V1 [2019-12-06]

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