Myopia and anchoring
By: Angeletos, George-Marios and Huo, Zhen
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Material type: 
BookPublisher: The American Economic Review Description: 111(4), Apr, 2021: p.1166-1200.Subject(s): Price level, Inflation, Deflation, Prices, Business Fluctuations, Forecasting and simulation, Models and applications
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The American Economic ReviewSummary: We develop an equivalence between the equilibrium effects of incomplete information and those of two behavioral distortions: myopia, or extra discounting of the future; and anchoring of current behavior to past behavior, as in models with habit persistence or adjustment costs. We show how these distortions depend on higher-order beliefs and GE mechanisms, and how they can be disciplined by evidence on expectations. We finally illustrate the use of our toolbox with a quantitative application in the context of inflation, a bridge to the HANK literature, and an extension to networks. – Reproduced
We develop an equivalence between the equilibrium effects of incomplete information and those of two behavioral distortions: myopia, or extra discounting of the future; and anchoring of current behavior to past behavior, as in models with habit persistence or adjustment costs. We show how these distortions depend on higher-order beliefs and GE mechanisms, and how they can be disciplined by evidence on expectations. We finally illustrate the use of our toolbox with a quantitative application in the context of inflation, a bridge to the HANK literature, and an extension to networks. – Reproduced
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