Wishful Thinking

49 Pages Posted: 1 Apr 2019 Last revised: 29 Mar 2021

See all articles by Andrew Caplin

Andrew Caplin

New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER)

John Leahy

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy

Date Written: March 2019

Abstract

We model agents who get utility from their beliefs and therefore interpret information optimistically. They may exhibit several biases observed in psychological studies such as optimism, procrastination, confirmation bias, polarization, and the endowment effect. In some formulations, they exhibit these biases even though they are subjectively Bayesian. We argue that wishful thinking can lead to reduced saving, can make possible information-based trade, and can generate asset bubbles.

Suggested Citation

Caplin, Andrew and Leahy, John, Wishful Thinking (March 2019). NBER Working Paper No. w25707, Available at SSRN: https://ssrn.com/abstract=3363445

Andrew Caplin (Contact Author)

New York University (NYU) - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States
212-998-8950 (Phone)
212-995-3932 (Fax)

HOME PAGE: http://www.econ.nyu.edu/user/caplina/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

John Leahy

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy ( email )

735 South State Street, Weill Hall
Ann Arbor, MI 48109
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
21
Abstract Views
473
PlumX Metrics