Wishful Thinking
NBER WORKING PAPER SERIES WISHFUL THINKING Andrew Caplin John V. Leahy Working Paper 25707 http://www.nber.org/papers/w25707 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 March 2019 We thank Anmol Bhandari, Stefano DellaVigna, Wouter den Haan, Behzad Diba, Jordi Gali, Nicola Pavoni, Kaitlin Raimi, Matthew Shapiro, Allen Sinai, Alp Simsek, Linda Tesar, Fabrizio Perri, Jaume Ventura, and Gianluca Violante for helpful discussions. We thank the Alfred P. Sloan and NOMIS Foundations for support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w25707.ack NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2019 by Andrew Caplin and John V. Leahy. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Wishful Thinking Andrew Caplin and John V. Leahy NBER Working Paper No. 25707 March 2019 JEL No. D84,D91,E03,E71 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.
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