Eisenbach, Thomas M.; Schmalz, Martin C. - 2015
We provide a preference-based rationale for endogenous overconfidence. Horizon-dependent risk aversion, combined with a … possibility to forget, can generate overconfidence and excessive risk taking in equilibrium. An "anxiety prone" agent, who is more … risk-averse to imminent than to distant risks, has an incentive to distort her future self’s beliefs toward underestimating …