TY - JOUR
T1 - Myopia and anchoring
AU - Angeletos, George Marios
AU - Huo, Zhen
N1 - Funding Information:
*Angeletos: Department of Economics, Massachusetts Institute of Technology (email: angelet@mit.edu); Huo: Department of Economics, Yale University (email: zhen.huo@yale.edu). Mikhail Golosov was the coeditor for this article. We are grateful to three anonymous referees for extensive feedback, and to Chris Sims, Alexander Kohlhas, Luigi Iovino, and Alok Johri for discussing our paper in, respectively, the 2018 NBER Monetary Economics meeting, the 2018 Cambridge/INET conference, the 2018 Hydra workshop, and the 2018 Canadian Macro Study Group. We also acknowledge useful comments from Jaroslav Borovicka, Simon Gilchrist, Jennifer La’O, John Leahy, Kristoffer Nimark, Stephen Morris, Mikkel Plagborg-Møller, Dmitriy Sergeyev, and seminar participants at the aforementioned conferences, BC, BU, Columbia, NYU, LSE, UCL, UBC, Chicago Fed, Minneapolis Fed, Stanford, Carleton, Edinburgh, CUHK, the 2018 Duke Macro Jamboree, the 2018 Barcelona GSE Summer Forum EGF Group, the 2018 SED Meeting, the 2018 China International Conference in Economics, and the 2018 NBER Summer Institute. Angeletos acknowledges the support of the National Science Foundation under grant SES-1757198.
Publisher Copyright:
© 2021 American Economic Association. All rights reserved.
PY - 2021/4
Y1 - 2021/4
N2 - 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.
AB - 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.
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U2 - 10.1257/AER.20191436
DO - 10.1257/AER.20191436
M3 - Article
AN - SCOPUS:85114438915
SN - 0002-8282
VL - 11
SP - 1166
EP - 1200
JO - American Economic Review
JF - American Economic Review
IS - 4
ER -