Overconfidence, subjective perception and pricing behavior

Benigno, Pierpaolo; Karantounias, Anastasios G. (2019). Overconfidence, subjective perception and pricing behavior. Journal of economic behavior & organization, 164, pp. 107-132. Elsevier 10.1016/j.jebo.2019.05.029

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We study the implications of overconfidence for price setting in a monopolistic competition setup with incomplete information. Our price-setters overestimate their abilities to infer aggregate shocks from private signals. The fraction of uninformed firms is endogenous; firms can obtain information by paying a fixed cost. We find two results: i) overconfident firms are less inclined to acquire information relative to the rational benchmark; ii) prices might exhibit excess volatility driven by non-fundamental noise. We explore the empirical predictions of our model for idiosyncratic price volatility.

Item Type:

Journal Article (Original Article)

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Economics

UniBE Contributor:

Benigno, Pierpaolo

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics

ISSN:

0167-2681

Publisher:

Elsevier

Language:

English

Submitter:

Dino Collalti

Date Deposited:

03 Apr 2020 15:19

Last Modified:

03 Apr 2020 15:27

Publisher DOI:

10.1016/j.jebo.2019.05.029

BORIS DOI:

10.7892/boris.142192

URI:

https://boris.unibe.ch/id/eprint/142192

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