We present a new theory of asset pricing and portfolio choices under asymmetric reasoning, contrast the predictions with those under asymmetric information, and present experimental evidence in favor of our theory. The Efficient Markets Hypothesis and its formal foundation, the Rational...

Many tests of asset pricing models address only the pricing predictions - but these pricing predictions rest on portfolio choice predictions which seem obviously wrong. This paper suggests a new approach to asset pricing and portfolio choices, based on unobserved heterogeneity. This approach...

The Lucas asset pricing model is studied here in a controlled setting. Participants could trade two long-lived securities in a continuous open-book system. The experimental design emulated the stationary, infinite-horizon setting of the model and incentivized participants to smooth consumption...