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Non-Additivity of Subjective Expectations over Different Time Intervals

  • We examine the additivity of stock-market expectations over different time intervals. When asked about a ten-year interval, survey respondents expect a stock-price change that is not equal to, but closer to zero than, the sum of their expectations over two shorter time intervals that cover the same ten years. Such sub-additivity is irrational in that it cannot stem from aggregating short-term expectations. Model estimates show that the pattern is consistent with a time perception where shorter time intervals have a proportionally larger weight. We also find that the respondents’ degree of additivity is correlated with making larger financial investments.

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Metadaten
Document Type:Working Paper
Language:English
Author(s):Peter Haan, Chen Sun, Uwe Sunde, Georg Weizsäcker
Parent Title (English):Berlin School of Economics Discussion Papers
Hertie Collections (Serial Number):Berlin School of Economics Discussion Papers (4)
Publication year:2022
Publishing Institution:Hertie School
Number pages:38
Related URL:https://berlinschoolofeconomics.de/insights/bse-discussion-papers
DOI:https://doi.org/10.48462/opus4-4660
Release Date:2022/12/09
Tag:Expectation Formation, Time perception, Sub-additivity, Super-additivity
Edition:No. 4
Hertie School Research:BerlinSchoolOfEcon_Discussion_Papers
Licence of document (German):Creative Commons - CC BY - 4.0 International
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