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...

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...

Financial decision making is the outcome of complex neurophysiological processes involving, among others, constant re-evaluation of the statistics of the problem at hand, balancing of the various emotional aspects, and computation of the very value signals that are at the core of modern economic...

The theory and the data in this Paper challenge the view that there is no structure in prices and allocations when markets are off equilibrium. Starting from the observation that price-taking usually applies only to small orders, a theory of equilibration is derived based on the assumption that...