Optimal Strategic Beliefs

Napp, Clotilde; Jouini, Elyes

doi:10.2139/ssrn.1362427

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Optimal Strategic Beliefs

22 Pages Posted: 18 Mar 2009

See all articles by Clotilde Napp

Clotilde Napp

CNRS and Université Paris-Dauphine ; IZA

Elyes Jouini

Univ. Paris Dauphine - CEREMADE

There are 2 versions of this paper

Date Written: March 18, 2009

Abstract

We provide a discipline for belief formation through a model of subjective beliefs, in which agents hold incorrect but strategic beliefs. More precisely, we consider beliefs as a strategic variable that agents can choose (consciously or not) in order to maximize their utility at the equilibrium. We find that strategic behaviour leads to belief subjectivity and heterogeneity. Optimism (resp. overconfidence) as well as pessimism (resp. doubt) both emerge as optimal beliefs. Furthermore, we obtain a positive correlation between pessimism (resp. doubt) and risk-tolerance.

Keywords: beliefs formation, strategic beliefs, optimal beliefs, distorded beliefs

JEL Classification: D81, D84, G12, D03

Suggested Citation: Suggested Citation

Napp, Clotilde and Jouini, Elyes, Optimal Strategic Beliefs (March 18, 2009). Available at SSRN: https://ssrn.com/abstract=1362427 or http://dx.doi.org/10.2139/ssrn.1362427