Behavioral Biases in General Equilibrium
This paper studies present bias in a life-cycle model with heterogeneous preferences. Previous research outlining the role of behavioral biases in the macroeconomy largely falls into one of three categories: (1) partial equilibrium, (2) infinite horizon, or (3) homogeneous preferences. We introduce three novel findings to this literature. First, partial equilibrium models dramatically overstate the impact of present bias on economy-wide and household outcomes. Second, the life-cycle is an essential element for understanding the impact of present bias on agent decision making. Third, when considering behavioral biases in general equilibrium, the proportion of agents with present-biased preferences is a crucial determinant of the economy-wide wealth distribution. This occurs as time-consistent individuals benefit from the aggregate mis-optimization of their present-biased peers, an effect absent in homogeneous preference models or models in which prices do not adjust in response to aggregate savings
Year of publication: |
2023
|
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Authors: | Nighswander, Tristan |
Publisher: |
[S.l.] : SSRN |
Subject: | Allgemeines Gleichgewicht | General equilibrium | Theorie | Theory | Systematischer Fehler | Bias | Verhaltensökonomik | Behavioral economics |
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