TY  - JOUR
AU  - Benigno,Pierpaolo
AU  - Karantounias,Anastasios
TI  - Overconfidence, Subjective Perception and Pricing Behavior
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11922
PY  - 2006
Y2  - January 2006
UR  - http://www.nber.org/papers/w11922
L1  - http://www.nber.org/papers/w11922.pdf
N1  - Author contact info:
Pierpaolo Benigno
Dipartimento di Economia e Finanza
Luiss Guido Carli
Viale Romania 32
00197 Rome
ITALY
Tel: 39-0685225-552
E-Mail: pierpaolo.benigno@eief.it

Anastasios Karantounias
1000 Peachtree St NE, Atlanta GA 30309
E-Mail: anastasios.karantounias@atl.frb.org
AB  - We study the implications of a particular form of irrationality on the pricing behavior of firms in a monopolistic-competitive market with incomplete information. We assume that firms are overconfident, meaning that they over-estimate their abilities to understand the correct model of the economy. However, we allow firms to obtain information by paying a fixed cost. We find two important implications: i) overconfident firms are less inclined to acquire information; ii) prices might exhibit excess volatility driven by non-fundamental disturbances. We use our model to match some facts related to recent empirical evidence on disaggregated price data for the US economy.
ER  -