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Non-Additivity of Subjective Expectations over Different Time Intervals

Discussion Papers 2027, 23 S., Anh.

Peter Haan, Chen Sun, Uwe Sunde, Georg Weizsäcker


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We examine the additivity of stock-market expectations over different time intervals. When asked about a ten-year interval, survey respondents expect a stock-price change that is not equal to, but closer to zero than, the sum of their expectations over two shorter time intervals that cover the same ten years. Such sub-additivity is irrational in that it cannot stem from aggregating short-term expectations. Model estimates show that the pattern is consistent with a time perception where shorter time intervals have a proportionally larger weight. We also find that the respondents’ degree of additivity is correlated with making larger financial investments.

Peter Haan

Head of Department in the Public Economics Department

JEL-Classification: D01;D14;D84;D9
Keywords: Expectation formation, time perception, sub-additivity, super-additivity