Censored Beliefs and Wishful Thinking
Abstract
We present a model elucidating wishful thinking, which comprehensively incorporates both the costs and benefits associated with biased beliefs. Our findings reveal that wishful thinking behavior can be characterized as equivalent to superquantile-utility maximization within the domain of threshold beliefs distortion cost functions. By leveraging this equivalence, we establish WT as driving decision-makers to exhibit a preference for choices characterized by skewness and increased risk. Furthermore, we discuss how our framework facilitates the study of optimistic stochastic choice and optimistic risk aversion.
Cite
@article{arxiv.2402.01892,
title = {Censored Beliefs and Wishful Thinking},
author = {Jarrod Burgh and Emerson Melo},
journal= {arXiv preprint arXiv:2402.01892},
year = {2025}
}
Comments
This paper, previously circulated under the title "Wishful Thinking is Risky Thinking: A Statistical-Distance Based Approach,'' has been divided into two separate and complementary works: "Wishful Thinking is Risky Thinking" [arXiv:2307.02422] and "Censored Beliefs and Wishful Thinking."