Under-reaction: Irrational behavior or robust response to model misspecification?
Massari, Filippo (2020) Under-reaction: Irrational behavior or robust response to model misspecification?
Full text not available from this repository. (Request a copy)Abstract
Under-reaction is a robust response to model misspecification rewarded by financial markets, rather than an “irrational” attitude that leads to extinction. I show that under-reacting rules guarantee predictions as accurate as Bayes’ in well-specified learning problems and beat Bayes’ in many misspecified learning environments. Therefore, when a Bayesian agent trades with an under-reacting agent with the same information, there are no paths on which the under-reacting agent loses all his wealth against the Bayesian, while there is a large class of misspecified learning settings in which the Bayesian agent loses all his wealth against the under-reacting agent.
Item Type: | Article |
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Faculty \ School: | Faculty of Social Sciences > School of Economics |
Related URLs: | |
Depositing User: | LivePure Connector |
Date Deposited: | 23 Jul 2020 23:49 |
Last Modified: | 07 Mar 2021 00:41 |
URI: | https://ueaeprints.uea.ac.uk/id/eprint/76262 |
DOI: |
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