American Economic Review Vol. 111 No. 4 2021
Myopia and Anchoring
Abstract
We develop an equivalence between the equilibrium effects of incomplete information and those of two behavioral distortions: myopia, or extra discounting of the future; and anchoring of current behavior to past behavior, as in models with habit persistence or adjustment costs. We show how these distortions depend on higher-order beliefs and GE mechanisms, and how they can be disciplined by evidence on expectations. We finally illustrate the use of our toolbox with a quantitative application in the context of inflation, a bridge to the HANK literature, and an extension to networks.
- DOI
- 10.1257/aer.20191436
- Volume
- 111
- Issue
- 4
- Pages
- 1166-1200
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref