Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments August 8, 2023 erstellt
Description:
We examine the implications of time inconsistency and time-varying partial naivete for dynamic trading, asset prices, and portfolio choices. We show that the time-varying degree of naivete causes time variation in discount rates, which creates uncertainty about the future consumption of the time-consistent agents and a drop in their consumption level when discount rates are high and market value is low. As a result, the presence of partially naive time-inconsistent investors generates extra risk on the market and increases the risk premium in the economy. In addition, we show that sophisticated agents who are aware of their bias and their higher future consumption when upcoming market value is low, tend to borrow more in order to invest in risky assets. In contrast, time-consistent and fully naive agents, who believe they will become time-consistent, tend to sell risky assets and save more. Finally, time-consistent and fully naive agents prefer to invest in value stocks that are less sensitive to discount rate shocks, while sophisticated agents tend to invest more in growth stocks