Market selection with idiosyncratic uncertainty

• 成果类型: Article
• 署名作者: Sihvonen, Markus
• 署名单位: Bank of Finland
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2019.04.005
• 发表日期: 2019
• 页码: 143-160
• 关键词: Market selection hypothesis; asset pricing; heterogeneous beliefs; general equilibrium

摘要

I analyze the survival probabilities of different types of agents in a general equilibrium model with disagreement over idiosyncratic uncertainties. I find that such biases create a separation between individual and group level survival: even when the survival probability of a single irrational agent tends to zero, these agents may still succeed as a whole. Effectively the irrational agent population can survive due to a vanishingly small group of increasingly rich agents. Disagreement over idiosyncratic uncertainties distorts savings decisions and interest rates, but idiosyncratic risks are not priced. Simulations confirm that the limiting results are relevant when the population of irrational agents is large. (C) 2019 Elsevier Inc. All rights reserved.