Disagreement, tastes, and asset prices

Standard asset pricing models assume that: (i) there is complete agreement among investors about probability distributions of future payoffs on assets; and (ii) investors choose asset holdings based solely on anticipated payoffs-, that is, investment assets are not also consumption goods. Both assumptions are unrealistic. We provide a simple framework for studying how disagreement and tastes for assets as consumption goods can affect asset prices. (c) 2006 Elsevier B.V. All rights reserved.