Dynamic beliefs

• 成果类型: Article
• 署名作者: Macera, Rosario
• 署名单位: Pontificia Universidad Catolica de Chile
• 刊物名称: GAMES AND ECONOMIC BEHAVIOR
• ISSN/ISSBN: 0899-8256
• DOI: 10.1016/j.geb.2014.05.003
• 发表日期: 2014
• 页码: 1-18
• 关键词: Optimal beliefs; Anticipatory utility; Reference-dependent utility; Bonuses; incentives

摘要

This paper studies the temporal path of subjective probability assessments. A reference-dependent agent who experiences utility from anticipation and from changes in this anticipatory emotion makes utility-maximizing assessments about his likelihood of success in a future lottery. Consistent with the empirical evidence, the model predicts that if the lottery is sufficiently valuable, optimism decreases as the payoff date approaches. Intuitively, as time goes by, last-period expected disappointment becomes increasingly important relative to the joy of anticipating a favorable outcome. Applying the model to the optimal timing of productivity bonuses, I find that a decreasing path of beliefs reduces the cost of providing incentives. Thus, optimal bonuses are sizable and are not frequently offered. (C) 2014 Elsevier Inc. All rights reserved.