A Welfare Criterion For Models With Distorted Beliefs
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Simsek_A welfare.pdf
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454.06 KB
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Author(s)
Brunnermeier, Markus K.
Simsek, Alp
Xiong, Wei
Date Issued
September 2014
Journal
Quarterly Journal of Economics
Publisher
Oxford University Press
Citation
Brunnermeier, M. K., A. Simsek, and W. Xiong. “A Welfare Criterion For Models With Distorted Beliefs.” The Quarterly Journal of Economics 129, no. 4 (September 17, 2014): 1753–1797.
Version
Original manuscript
Abstract
This article proposes a welfare criterion for economies in which agents have heterogeneously distorted beliefs. Instead of taking a stand on whose belief is correct, our criterion asserts that an allocation is belief-neutral efficient (inefficient) if it is efficient (inefficient) under any convex combination of agents’ beliefs. Although this criterion gives an incomplete ranking of social allocations, it can identify positive- and negative-sum speculation driven by conflicting beliefs in a broad range of economic environments.
MIT Department
Massachusetts Institute of Technology. Department of Economics
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Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.1093/qje/qju025
