Gurus and Beliefs Manipulation

Abstract

We analyze a model with two types of agents: standard agents and gurus, i.e. agents who have the ability to influence the other investors. Gurus announce their beliefs and act accordingly. Gurus are strategic: they take into account the impact of their announced beliefs on the other agents, hence on prices. Standard agents observe gurus' performances, choose a guru and follow his recommendations. Prices are determined through a classical Walras mechanism. The competition among gurus for attracting followers among standard agents is described by a simple dynamics and we focus on its steady states. At the equilibrium, this leads to beliefs heterogeneity, to a positive correlation between optimism and risk aversion and to higher risk premia. The impact is stronger on the riskier assets.

Keywords: standard agents, investors, gurus’ performances, equilibrium, beliefs heterogeneity, risk aversion, riskier assets

JEL Classification: F41, D5