A Theory of Misperception in a Stochastic Dominance Framework and its Application to Structured Financial Products
In this paper, the mechanism of misperception leading retail investors to investment choices,
which are not the most profitable, is studied in a stochastic dominance framework
from a theoretical perspective and supported by an extensive numerical analysis.
The theoretical contribution of the paper consists in the introduction of a specific definition of
stochastic dominance, to capture the effects of an asymmetric trend-type misperception. Such a
novel conceptualization is consistent with the perspective here adopted, i.e. the misperception