Maximilian Voigt, Frankfurt School of Finance and Management
Abstract: I present a consumption-based asset pricing model in which the representative agent forms Bayesian beliefs based on selectively recalled observations. The agent is more likely to recall past fundamentals that resemble current fundamentals. This similarity-weighted selective memory jointly explains important facts about belief formation, survey data, and realized asset prices. Subjective expectations overreact and are procyclical, the subjective volatility is countercyclical, and the subjective risk premium has a low volatility. In contrast, realized returns are predictably countercyclical, highly volatile, and unrelated to variation of objective risk measures. My results suggest that human memory can simultaneously account for individual-level data and aggregate asset pricing facts.
Yuriy Gorodnichenko, University of California-Berkeley
Abstract: Using randomized control trials (RCTs) applied over time in different countries, we study how
the economic environment affects how agents learn from new information. We show that as
inflation has recently risen in advanced economies, both households and firms have become more
attentive and informed about inflation, leading them to respond less to exogenously provided
information about inflation and monetary policy. We also study the effects of RCTs in countries
where inflation has been consistently high (Uruguay) and low (New Zealand) as well as what
happens when the same agents are repeatedly provided information in both low- and high inflation environments (Italy). Our results broadly support models in which inattention is an
endogenous outcome that depends on the economic environment.
Xiaohuan Wang, Shanghai National Accounting Institute
Abstract: Using four datasets of individuals’ digital payment and mutual fund investment records from a dominating fintech platform, we observe a robust U-shaped relation between individuals’ consumption and their financial wealth shocks. Contrary to the prediction of the wealth effect, individuals increase their consumption shortly after experiencing large positive and negative wealth shocks. The unexpected increase in consumption following negative wealth shocks is particularly pronounced among consumption categories with a “hedonic” nature, such as entertainment-related items. We show that this effect, termed “financial retail therapy,” is consistent with a dynamic model of Prospect Theory and evidence from a controlled laboratory experiment.
Discussant: Michaela Pagel, Washington University-St. Louis
