Pricing a risk whose intensity is perceived differently.

Summary The purpose of this paper is to analyze the consequences of introducing heterogeneous risk and time perceptions (beliefs, impatience rates) in standard valuation models. We first show that the various arguments put forward in the literature to deny this heterogeneity or to neglect its effects are contradicted both by the data and by the most recent work. We then introduce a typology of these perceptions, analyze their various forms and study how the market aggregates them. We deduce the impact of this heterogeneity of perceptions on the risk premium (or the market price of risk) and on the price of time (discount rate or interest rate). In particular, we show that in the long run, the diversity of perceptions should lead to a more conservative valuation: lower discount rate and higher risk premium.