Jose Luis Montiel Olea, Pietro Ortoleva, Mallesh M Pai, Andrea Prat
arXiv 8 Jul 2019 · Theoretical Economics · publishedThe Quarterly Journal of Economics (2022) · 24 citations (OpenAlex)
arXiv:1907.03809 · PDF · DOI · OpenAlex · Extracted main text
Different agents need to make a prediction. They observe identical data, but have different models: they predict using different explanatory variables. We study which agent believes they have the best predictive ability -- as measured by the smallest subjective posterior mean squared prediction error -- and show how it depends on the sample size. With small samples, we present results suggesting it is an agent using a low-dimensional model. With large samples, it is generally an agent with a high-dimensional model, possibly including irrelevant variables, but never excluding relevant ones. We apply our results to characterize the winning model in an auction of productive assets, to argue that entrepreneurs and investors with simple models will be over-represented in new sectors, and to understand the proliferation of "factors" that explain the cross-sectional variation of expected stock returns in the asset-pricing literature.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Fama, E. F. and K. R. French (1993) Common risk factors in the returns on stocks and bonds | 0.781 | 7 | 2 | 71% |
| 2 | Levy, G., R. Razin, and A. Young (2019) Misspecified Politics and the Recurrence of Populism, Tech | 0.737 | 3 | 2 | 100% |
| 3 | Fama, E. F. and K. R. French (2015) A five-factor asset pricing model | 0.693 | 6 | 2 | 50% |
| 4 | Feng, G., S. Giglio, and D. Xiu (2020) Taming the factor zoo: A test of new factors | 0.659 | 14 | 2 | 43% |
| 5 | Eliaz, K. and R. Spiegler (2018) A Model of Competing Narratives | 0.644 | 2 | 2 | 100% |
| 6 | Harrison, J. M. and D. M. Kreps (1978) Speculative investor behavior in a stock market with heterogeneous expectations | 0.644 | 2 | 2 | 100% |
| 7 | He, K. and J. Libgober (2020) Evolutionarily Stable (Mis) specifications: Theory and Applications | 0.644 | 2 | 2 | 100% |
| 8 | Kleijn, B. and A. Van der Vaart (2012) The Bernstein-von-Mises theorem under misspecification | 0.644 | 2 | 2 | 100% |
| 9 | Morris, S (1994) Trade with heterogeneous prior beliefs and asymmetric information | 0.644 | 2 | 2 | 100% |
| 10 | Kass, R., L. Tierney, and J. B. Kadane (1990) The validity of posterior expansions based on Laplaces method, in | 0.550 | 8 | 2 | 25% |
Showing the top 10 of 74 scored citations.