Competing Models*

• 成果类型: Article
• 署名作者: Montiel Olea, Jose Luis; Ortoleva, Pietro; Pai, Mallesh M.; Prat, Andrea
• 署名单位: Cornell University; Princeton University; Rice University; Columbia University
• 刊物名称: QUARTERLY JOURNAL OF ECONOMICS
• ISSN/ISSBN: 0033-5533
• DOI: 10.1093/qje/qjac015
• 发表日期: 2022
• 页码: 2419-2457
• 关键词: Common prior; overconfidence; INFORMATION; equilibrium; agreement; fragility; beliefs; MARKET; TRADE; RISK

摘要

Different agents need to make a prediction. They observe identical data, but have different models: they predict using different explanatory variables. We study which agent believes they have the best predictive ability-as measured by the smallest subjective posterior mean squared prediction error-and show how it depends on the sample size. With small samples, we present results suggesting it is an agent using a low-dimensional model. With large samples, it is generally an agent with a high-dimensional model, possibly including irrelevant variables, but never excluding relevant ones. We apply our results to characterize the winning model in an auction of productive assets, to argue that entrepreneurs and investors with simple models will be overrepresented in new sectors, and to understand the proliferation of factors that explain the cross-sectional variation of expected stock returns in the asset-pricing literature.