Consensus Consumer and Intertemporal Asset Pricing with Heterogeneous Beliefs

42 Pages Posted: 15 Jul 2006 Last revised: 24 Jun 2015

See all articles by Elyes Jouini

Elyes Jouini

Univ. Paris Dauphine - CEREMADE

Clotilde Napp

CNRS and Université Paris-Dauphine ; IZA

Date Written: March 11, 2008


The aim of the paper is to analyze the impact of heterogeneous beliefs in an otherwise standard competitive complete market economy. The construction of a consensus probability belief, as well as a consensus consumer, are shown to be valid modulo an aggregation bias, which takes the form of a discount factor. In classical cases, the consensus probability belief is a risk-tolerance weighted average of the individual beliefs, and the discount factor is proportional to the beliefs dispersion. This discount factor makes the heterogeneous beliefs setting fundamentally different from the homogeneous beliefs setting, and it is consistent with the interpretation of belief heterogeneity as a source of risk.

We then use our construction to rewrite in a simple way the equilibrium characteristics (market price of risk, risk premium, risk-free rate) in a heterogeneous beliefs framework and to analyze the impact of belief heterogeneity. Finally, we show that it is possible to construct specific parametrizations of the heterogeneous beliefs model that lead to globally higher risk premia, lower risk-free rates, and risk premia that are lower for assets with higher belief dispersion.

Keywords: Risk premium, beliefs heterogeneity, optimism, pessimism, consensus consumer

JEL Classification: G10, G12, D84

Suggested Citation

Jouini, Elyes and Napp, Clotilde, Consensus Consumer and Intertemporal Asset Pricing with Heterogeneous Beliefs (March 11, 2008). Available at SSRN: or

Elyes Jouini (Contact Author)

Univ. Paris Dauphine - CEREMADE ( email )

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Clotilde Napp

CNRS and Université Paris-Dauphine ( email )

Place de Lattre de Tassigny
Paris, 75775

IZA ( email )

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