Biased Bayesian learning with an application to the risk-free rate puzzle

Show simple item record Ludwig, Alexander Zimper, Alexander 2014-09-19T05:12:07Z 2014-09-19T05:12:07Z 2014-02
dc.description.abstract Based on the axiomatic framework of Choquet decision theory, we develop a closed-form model of Bayesian learning with ambiguous beliefs about the mean of a normal distribution. In contrast to rational models of Bayesian learning the resulting Choquet Bayesian estimator results in a long-run bias that reflects the agent’s ambiguity attitudes. By calibrating the standard equilibrium conditions of the consumption based asset pricing model we illustrate that our approach contributes towards a resolution of the risk-free rate puzzle. For a plausible parameterization we obtain a risk-free rate in the range of 35 −5%. This is 1 −25% closer to the empirical risk-free rate than according calibrations of the rational expectations model. en_US
dc.description.librarian hb2014 en_US
dc.description.uri en_US
dc.identifier.citation Ludwig, A & Zimper, A 2014, 'Biased Bayesian learning with an application to the risk-free rate puzzle', Journal of Economic Dynamics and Control, vol. 39, pp. 79-97. en_US
dc.identifier.issn 0165-1889 (print)
dc.identifier.issn 1879-1743 (online)
dc.identifier.other 10.1016/j.jedc.2013.11.007
dc.language.iso en en_US
dc.publisher Elsevier en_US
dc.rights © 2014 Elsevier B.V. All rights reserved. Notice : this is the author’s version of a work that was accepted for publication in Journal of Economic Dynamics and Control. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Economic Dynamics and Control, vol.39, pp. 79-97, 2014. doi :10.1016/j.jedc.2013.11.007. en_US
dc.subject Ambiguity en_US
dc.subject Non-additive probability measures en_US
dc.subject Bayesian learning en_US
dc.subject Truncated normal distribution en_US
dc.subject Risk-free rate puzzle en_US
dc.title Biased Bayesian learning with an application to the risk-free rate puzzle en_US
dc.type Postprint Article en_US

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