Correlation misperception in choice

Ellis, Andrew ORCID: 0000-0002-7552-4832 and Piccione, Michele (2017) Correlation misperception in choice. American Economic Review, 107 (4). pp. 1264-1292. ISSN 0002-8282

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Abstract

We present a decision-theoretic analysis of an agent’s understanding of the interdependencies in her choices. We provide the foundations for a simple and flexible model that allows the misperception of correlated risks. We introduce a framework in which the decision maker chooses a portfolio of assets among which she may misperceive the joint returns, and present simple axioms equivalent to a representation in which she attaches a probability to each possible joint distribution over returns and then maximizes subjective expected utility using her (possibly misspecified) beliefs.

Item Type:	Article
Official URL:	https://www.aeaweb.org/journals/aer
Additional Information:	© 2017 American Economic Association
Divisions:	Economics
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management H Social Sciences > HG Finance
JEL classification:	D - Microeconomics > D1 - Household Behavior and Family Economics > D11 - Consumer Economics: Theory D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
Date Deposited:	22 Nov 2016 15:22
Last Modified:	18 Jan 2024 05:45
URI:	http://eprints.lse.ac.uk/id/eprint/68326

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