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"This paper shows how rational investors can have different degrees of optimism regarding the prospects of the economy, even if they share exactly the same information regarding all economic fundamentals. The key is that heterogeneity in expectations regarding endogenous outcomes can emerge as a purely self-fulfilling equilibrium property when investment choices are strategic complements. This in turn has interesting novel positive and normative implications for a wide class of models that feature such complementarities: (i) It can rationalize idiosyncratic investor sentiment. (ii) It can be the source of significant heterogeneity in real and financial investment choices, even in the absence of any heterogeneity in individual characteristics and despite the presence of a strong incentive to coordinate on the same course of action. (iii) It can sustain rich fluctuations in aggregate investment and asset prices, including fluctuations that are smoother than those often associated with multiple-equilibria models. (iv) It can capture the idea that investors learn slowly how to coordinate on a certain course of action. (v) It can boost welfare. (vi) It can render apparent coordination failures evidence of improved efficiency"--National Bureau of Economic Research web site.
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Private sunspots and idiosyncratic investor sentiment
2008, National Bureau of Economic Research
Electronic resource
in English
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Book Details
Edition Notes
Title from PDF file as viewed on 7/10/2008.
Includes bibliographical references.
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.
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- Created September 27, 2008
- 5 revisions
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December 22, 2020 | Edited by MARC Bot | import existing book |
July 31, 2012 | Edited by VacuumBot | Updated format '[electronic resource] /' to 'Electronic resource' |
December 15, 2009 | Edited by WorkBot | link works |
October 28, 2008 | Edited by ImportBot | Found a matching Library of Congress MARC record |
September 27, 2008 | Created by ImportBot | Imported from Library of Congress MARC record |