Priors and Desires: a Model of Optimism, Pessimism, and Cognitive Dissonance
نویسنده
چکیده
This paper offers a model of optimism, pessimism, and cognitive dissonance. Beliefs—and consequently choices—depend not only on relevant information, but also on what makes the decision maker better-off. In an associated experiment, subjects who stood to gain from an increase in the price of a financial asset predicted higher prices than subjects who stood to gain from a decrease in price. Consistent with the model, better information resulted in a smaller bias, but incentives for accuracy made no difference. JEL classification: D01,D03,D80,D81,D83,D84.
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