Wishful Thinking is Risky Thinking
Theoretical Economics
2024-02-06 v2
Abstract
We develop a model of wishful thinking that incorporates the costs and benefits of biased beliefs. We establish the connection between distorted beliefs and risk, revealing how wishful thinking can be understood in terms of risk measures. Our model accommodates extreme beliefs, allowing wishful-thinking decision-makers to assign zero probability to undesirable states and positive probability to otherwise impossible states.
Cite
@article{arxiv.2307.02422,
title = {Wishful Thinking is Risky Thinking},
author = {Jarrod Burgh and Emerson Melo},
journal= {arXiv preprint arXiv:2307.02422},
year = {2024}
}
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" and "Censored Beliefs and Wishful Thinking."