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.
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 |