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Behavioral Biases and the Representative Agent

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behavSSRN202.pdf (413.0Kb)
Date
2012
Dewey
Economie financière
Sujet
Hyperbolic Discounting; Behavioral Agent; Neurofinance; Representative Agent; Probability Weighting Function
JEL code
D87; D03; H43; D84; G11; D81
Journal issue
Theory and Decision
Volume
73
Number
1
Publication date
2012
Article pages
97-123
Publisher
Springer
DOI
http://dx.doi.org/10.1007/s11238-011-9274-3
URI
https://basepub.dauphine.fr/handle/123456789/2319
Collections
  • CEREMADE : Publications
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Author
Jouini, Elyès
Napp, Clotilde
Type
Article accepté pour publication ou publié
Abstract (EN)
In this paper, we show that behavioral features can be obtained at a group level when the individuals of the group are heterogeneous enough. More precisely, starting from a standard model of Pareto optimal allocations, with expected utility maximizers and exponential dis- counting, but allowing for heterogeneity among agentsíbeliefs and time preference rates, we show that the representative agent exhibits interesting behavioral properties. In particular, we obtain an inverse S-shaped probability distribution weighting function and hyperbolic discounting. We provide possible interpretation as well as applications for this result.

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