@techreport{NBERw11922, title = "Overconfidence, Subjective Perception and Pricing Behavior", author = "Pierpaolo Benigno and Anastasios Karantounias", institution = "National Bureau of Economic Research", type = "Working Paper", series = "Working Paper Series", number = "11922", year = "2006", month = "January", doi = {10.3386/w11922}, URL = "http://www.nber.org/papers/w11922", abstract = {We study the implications of a particular form of irrationality on the pricing behavior of firms in a monopolistic-competitive market with incomplete information. We assume that firms are overconfident, meaning that they over-estimate their abilities to understand the correct model of the economy. However, we allow firms to obtain information by paying a fixed cost. We find two important implications: i) overconfident firms are less inclined to acquire information; ii) prices might exhibit excess volatility driven by non-fundamental disturbances. We use our model to match some facts related to recent empirical evidence on disaggregated price data for the US economy.}, }