Behavioral Theories and investment CR Barberis &z huang(2001, JF): mental accounting and loss aversion CR Angeletos, Laibson, Repetto, Tobacman and Weinberg (2001, JEP); Harris laibson(2001, Econometrica) Salanie and Treich(2006, EER): hyperbolic discounting cR Grenadier &z wang(2007, JFE): real options investment model with hyperbolic discounting entrepreneurs CR Munk(2008, JEDC): habit formation
Barberis & Huang (2001, JF): mental accounting and loss aversion Angeletos, Laibson, Repetto, Tobacman and Weinberg (2001, JEP); Harris & Laibson (2001, Econometrica); Salanie and Treich (2006, EER): hyperbolic discounting Grenadier & Wang (2007, JFE): real options investment model with hyperbolic discounting entrepreneurs Munk (2008, JEDC): habit formation Behavioral Theories and Investment
Hyperbolic Discounting CR Frederick, Loewenstein and O Donoghue(2002, JEL): given two similar rewards, humans show a preference for one that arrives sooner rather than later, but valuations fall very rapidly for small delay periods, but then fall slowly for longer delay periods 1.0 k10 0.8 0.8 50.6 0.6 0.4 04 02 0.2 0.0 0 5 15 time horizon(years) time horizon (years) igure la. Discount Factor as a Function of Time Figure lb. Discount Factor as a Function of Time Horizon(all studies Horizon(studies with avg horizons I year
Frederick, Loewenstein and O’Donoghue (2002, JEL): given two similar rewards, humans show a preference for one that arrives sooner rather than later, but valuations fall very rapidly for small delay periods, but then fall slowly for longer delay periods Hyperbolic Discounting
Facts Related to Hyperbolic Discounting CR Time inconsistent preferences, implying a motive for consumers to constrain their own future choices (Laibson, QJE 1997) C Under-saving(Laibson, EER 1998; Diamond and Koszegi PubE 2003 Salanie and Reich, EER 2006) C3 Over-borrowing(Heidhues and Koszegi, AER 2010 C3 Use of commitment device(Basu, AEJ-Micro 2011)
Time inconsistent preferences, implying a motive for consumers to constrain their own future choices (Laibson, QJE 1997) Under-saving (Laibson, EER 1998; Diamond and Koszegi, JPubE 2003; Salanie and Treich, EER 2006) Over-borrowing (Heidhues and Kőszegi, AER 2010) Use of commitment device (Basu, AEJ-Micro 2011) Facts Related to Hyperbolic Discounting
The role of Intermediaries for Investors CR Information production: He(2007, RFS); Gorton and He (2008,RES) CR Monitoring: Diamond (1984, RES CR Screening: Bernanke and Blinder(1988, AER CR Liquidity provider: Diamond and Dybvig(1983, JPE CR Risk transformation: Diamond(1984, RES CR Maturity transformation: Diamond and Dybvig(1983, JPE CR Payment methods: He, Huang and Wright(2005, IER)
Information production: He (2007, RFS); Gorton and He (2008, RES) Monitoring: Diamond (1984, RES) Screening: Bernanke and Blinder (1988, AER) Liquidity provider: Diamond and Dybvig (1983, JPE) Risk transformation: Diamond (1984, RES) Maturity transformation: Diamond and Dybvig (1983, JPE) Payment methods: He, Huang and Wright (2005, IER) The Role of Intermediaries for Investors
Goal of This Paper cR Time inconsistent preference generates a liquidit shortage for the investor who invests on his own c& Financial intermediaries make investments on behalf of the investors and provide liquidity for unsophisticated investors sR The financial intermediaries in our model can be interpreted as banks, pension funds, mutual funds etc
Time inconsistent preference generates a liquidity shortage for the investor who invests on his own Financial intermediaries make investments on behalf of the investors and provide liquidity for unsophisticated investors The financial intermediaries in our model can be interpreted as banks, pension funds, mutual funds, etc. Goal of This Paper