This paper studies market selection in an Arrow-Debreu economy with complete markets where agents learn over misspecified models. Under model misspecification, standard Bayesian learning loses its formal justification and biased learning processes may provide a selection advantage. However,...

Arguing that in the real world relatively optimistic inexperienced investors are prey for relatively pessimistic veteran traders, we formalize this intuitive conjecture as a proven proposition in a simple model. This agreement to disagree leads to a perpetual bubble, in which more experienced,...

This note extends the CAPM to situations where a subset of investors is not mean-variance optimizers. We show that a CAPM relation holds when suitably adjusting beta to the presence of such investors. The adjusted CAPM can be used to reveal which non-mean-variance behavior is needed to explain...

The paper shows how the standard two-period CAPM with exogenous wealth and exogenous returns can be extended inter-temporally by including the evolution of wealth from the Evolutionary Finance model of Evstigneev, Hens and Schenk-Hoppe (2011). The missing link between the two models is given by...

This article features an interdisciplinary debate and dialogue about the nature of mind, perception, and rationality. Scholars from a range of disciplines — cognitive science, applied and experimental psychology, behavioral economics, and biology — offer critiques and commentaries of a...

Seeing — perception and vision — is implicitly the fundamental building block of the literature on rationality and cognition. Herbert Simon and Daniel Kahneman's arguments against the omniscience of economic agents — and the concept of bounded rationality — depend critically on a...

Effective financial reporting requires efficient information processing. This paper studies factors that determine efficient information processing. I exploit a unique small business lending setting where I am able to observe the entire codified demographic and accounting information set that...

This paper analyses the links between advances in financial technology, investors' sophistication, and their financial portfolios' composition and returns. We develop a simple portfolio choice model under asymmetric information and derive some theoretical predictions. Using detailed micro data...

This paper proposes an operationally simple and easily generalizable methodology to incorporate climate change damage uncertainty into Integrated Assessment Models (IAMs). Uncertainty is transformed into a risk-premium, damage-correction, region-specific factor by extracting damage distribution...

We investigate the emergence of momentum and reversal anomalies in a general equilibrium model with complete markets and cognitively biased agents, accounting for the presence of representativeness heuristic, conservatism, and anchoring and adjusting in their beliefs. We characterize anomalies...