Dynamic beliefs

Rosario Macera*

*Autor correspondiente de este trabajo

Resultado de la investigación: Contribución a una revistaArtículorevisión exhaustiva

2 Citas (Scopus)

Resumen

This paper studies the temporal path of subjective probability assessments. A reference-dependent agent who experiences utility from anticipation and from changes in this anticipatory emotion makes utility-maximizing assessments about his likelihood of success in a future lottery. Consistent with the empirical evidence, the model predicts that if the lottery is sufficiently valuable, optimism decreases as the payoff date approaches. Intuitively, as time goes by, last-period expected disappointment becomes increasingly important relative to the joy of anticipating a favorable outcome. Applying the model to the optimal timing of productivity bonuses, I find that a decreasing path of beliefs reduces the cost of providing incentives. Thus, optimal bonuses are sizable and are not frequently offered.

Idioma originalInglés
Páginas (desde-hasta)1-18
Número de páginas18
PublicaciónGames and Economic Behavior
Volumen87
DOI
EstadoPublicada - sept. 2014

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