Premium for equity is unexpectedly high (due to anxious anticipation on your future returns)
12 of 18
Patch 2) Empirics: Past consumption habits + reference points
1) Good habit formation (the more you save = the more you own) 2) Reference point (current wage utility depends on past earnings)
13 of 18
Puzzle 3) Time changing utility
Preferences will change over time (not stationary)
14 of 18
Patch 3) Viscreral influences (at the point in time)
Instantaneous utility incorporates endogenous visceral states (hunger/ sexual desires/ heat of moment/ cravings/ drug addiction...)
15 of 18
Patch 3) Projection bias (predicting about future point)
People underappreciate degree to which present consumption surge raises your reference consumption level (due to visceral influences)
16 of 18
Patch 3) Empirics: Affect of mood on stock returns
higher cloud cover = lower stock returns (preferences have changed due to exogenous weather shock)
17 of 18
Patch 3) Empirics: Time varying risk aversion
watching scary film increases your risk aversion preferences despite no physical impact (preferences have changed due to emotional impact of film clip)
18 of 18
Other cards in this set
Card 2
Front
Standard discounted utility model assumptions (3)
Back
1) Time discounted at constant rate/ factor 2) Consumptions independent across periods 3) Stationarity of u (preferences dont change over time)
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