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Behavioral biases and the representative agent

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Abstract

In this article, we show that behavioral features can be obtained at a group level even if they do not appear at the individual level. Starting from a standard model of Pareto optimal allocations, with expected utility maximizers but allowing for heterogeneity among individual beliefs, we show in particular that the representative agent has an inverse S-shaped probability distortion function as in Cumulative prospect theory.

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Authors and Affiliations

  1. CEREMADE, Université Paris Dauphine, Place du Maréchal de Lattre de Tassigny, 75 775, Paris cedex 16, France

    Elyès Jouini

  2. CRNRS-DRM and Université Paris Dauphine, Place du Maréchal de Lattre de Tassigny, 75 775, Paris cedex 16, France

    Clotilde Napp

Authors
  1. Elyès Jouini
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  2. Clotilde Napp
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Correspondence to Elyès Jouini.

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Jouini, E., Napp, C. Behavioral biases and the representative agent. Theory Decis 73, 97–123 (2012). https://doi.org/10.1007/s11238-011-9274-3

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