"In the presence of infrequent but observable structural breaks, we show that a model in which the representative agent is on a rational learning path concerning the real consumption growth process can generate high equity premia and low risk-free interest rates. In fact, when the model is...

"We show that when in Lucas trees model the process for dividends is described by a lattice tree subject to infrequent but observable structural breaks, in equilibrium recursive rational learning may inflate the equity risk premium and reduce the risk-free interest rate for low levels of risk...

Experiments in psychology, where subjects estimate confidence intervals to a series of factual questions, have shown that individuals report far too narrow intervals. This has been interpreted as evidence of overconfidence in the preciseness of knowledge, a potentially serious violation of the...