Corvinus Game Theory Seminar

Oct. 3 (10:00-11:00) room C.714

Helga Habis (Corvinus University of Budapest)

Procrastination and Intertemporal Consumption – A Three-Period Extension of The CAPM With Irrational Agents

In this paper, we investigate the capital asset pricing model (CAPM) derived from a three-period general equilibrium model incorporating time-inconsistent preferences. We define and consider two types of agents, i.e. they can be either sophisticated or naive. Sophisticated agents take into account their potentially changing future preferences when making a decision. Naive agents, on the other hand, do not anticipate this issue and their related self-control problems when they plan the consumption path. We demonstrate that the derivation of the CAPM equation can be achieved even if the agents in the financial economy have time-inconsistent preferences.