Temptation preferences can inform asset pricing, Fed researchers find
In the presence of consumer temptation, a wealth-consumption ratio, in addition to consumption growth, becomes a determinant of asset-pricing, and the importance of this additional pricing factor depends on the strength of temptation, according to a recent Federal Reserve Bank of San Francisco research paper.
To identify the presence of temptation, Temptation and self-control: Some evidence and applications by Kevin Huang, Zheng Liu, and John Zhu, tests the theory that a more tempted individual
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