General Equilibrium Dynamics with Naïve and Sophisticated Hyperbolic Consumers in an Overlapping Generations Economy

Bibliographic Data

ID9728478
AuthorsTakeshi Ojima (0000-0001-6888-0698, Hitotsubashi University, corresponding author)
Year2018
Volume85
Issue338
Pages281-304
Publication date2018-04-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueEconomica (JOURNAL)
Journal identifiersISSN: 0013-0427 • E-ISSN: 1468-0335
PublisherWiley (PUBLISHER • GB)
DOI10.1111/ecca.12242
OpenAlexW1560548334
LanguageEN
References cited25

Using an overlapping generations model, this paper describes interactions between naïve and sophisticated hyperbolic discounters in general equilibrium. The naïfs, who overestimate their propensity to save and hence overforecast equilibrium asset prices, in the next period are exploited through capital transactions by the sophisticates, who correctly forecast future asset prices by incorporating the naïfs’ misforecasts. Due to the capital losses, the naïfs fall into bankruptcy when they are highly present‐biased, highly patient, and small in proportion. Under permissive conditions, the equilibrium is shown to be globally stable and Pareto‐inefficient in the ex post sense

Asset (computer security) · Bankruptcy · Capital (architecture) · Econometrics · Economics · General equilibrium theory · Mathematical economics · Microeconomics · Monetary economics · Overlapping generations model · Complex Systems and Time Series Analysis · Computer Science · Economic theories and models · Economic Theory and Policy · Finance