We present a theory and experimental evidence on pricing and portfolio choices under asymmetric reasoning. We show that under asymmetric reasoning, prices do not reflect all (types of) reasoning. Some agents who observe prices that cannot be reconciled with their reasoning switch from perceiving...

Agents with cognitive limitations may compute the expected value of a risky asset incorrectly. If market prices reflect the probabilities of the payoff-relevant states, agents who compute the probabilities incorrectly encounter a market price that is inconsistent with their calculation. We test...