Twisting the truth: Foundations of wishful thinking

Artikel

Considerable evidence shows that people have optimistic beliefs about future outcomes. I present an axiomatic model of wishful thinking (WT), in which an endowed alternative, or status quo, influences the agent's beliefs over states and thus induces such optimism. I introduce a behavioral axiom formalizing WT and derive a representation in which the agent overweights states in which the endowment provides a higher payoff. WT is a novel channel through which an endowment may influence choice behavior and provides a coherent explanation for a variety of observed behavior, including choice reversals among non-status quo alternatives when the status quo changes. WT leads to inefficient risk sharing in an exchange economy and has unique implications for the gap between willingness to accept and willingness to pay for endowed goods.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Theoretical Economics ; ISSN: 1555-7561 ; Volume: 15 ; Year: 2020 ; Issue: 3 ; Pages: 989-1022 ; New Haven, CT: The Econometric Society

Classification and Topics

• Classification: Wirtschaft ; Microeconomic Behavior: Underlying Principles ; Consumer Economics: Theory ; Information, Knowledge, and Uncertainty: General ; Criteria for Decision-Making under Risk and Uncertainty ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
• Subject: Wishful thinking ; status quo bias ; reference dependence ; belief distortions ; optimism

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kovach, Matthew
• Event: Veröffentlichung
• (who): The Econometric Society
• (where): New Haven, CT
• (when): 2020

Further information

• DOI: doi:10.3982/TE2744
• Handle: http://hdl.handle.net/10419/253443
• Last update: 10.03.2025, 11:44 AM CET