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Overconfidence, Subjective Perception and Pricing Behavior / Pierpaolo Benigno, Anastasios Karantounias.
- Format:
- Book
- Author/Creator:
- Benigno, Pierpaolo.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w11922.
- NBER working paper series no. w11922
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2006.
- Summary:
- We study the implications of a particular form of irrationality on the pricing behavior of firms in a monopolistic-competitive market with incomplete information. We assume that firms are overconfident, meaning that they over-estimate their abilities to understand the correct model of the economy. However, we allow firms to obtain information by paying a fixed cost. We find two important implications: i) overconfident firms are less inclined to acquire information; ii) prices might exhibit excess volatility driven by non-fundamental disturbances. We use our model to match some facts related to recent empirical evidence on disaggregated price data for the US economy.
- Notes:
- Print version record
- January 2006.
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