This paper investigates collective denial and willful blindness in groups, organizations and markets. Agents with anticipatory preferences, linked through an interaction structure, choose how to interpret and recall public signals about future prospects. Wishful thinking (denial of bad news) is...

This experiment compares the price dynamics and bubble formation in an asset market with a price adjustment rule in three treatments where subjects (1) submit a price forecast only, (2) choose quantity to buy/sell and (3) perform both tasks. We find deviation of the market price from the...

This paper formalizes the idea that more hedging instruments may destabilize markets when traders are heterogeneous and adapt their behavior according to experience based reinforcement learning. We investigate three different economic settings, a simple mean-variance asset pricing model, a...

I analyze a general setting where a policy maker needs information that financial market traders have in order to implement her optimal policy, and market prices can potentially reveal this information. Policy decisions, in turn, affect asset values, hence forward looking traders may have...

The present value discount rate is about the investor, the expected market rate of return on his best alternative asset (BAA), his opportunity cost of buying a subject asset (not the subject's rate of return, subject owner's/seller's cost of capital, nor the required rate of return on an...

I study the long-run behavior of an economy with two types of agents who differ in their beliefs and are endowed with homothetic recursive preferences of the Duffie-Epstein-Zin type. Contrary to models with separable preferences in which the wealth of agents with incorrect beliefs vanishes in...

I study the long-run behavior of an economy with two types of agents who differ in their beliefs and are endowed with homothetic recursive preferences of the Duffie-Epstein-Zin type. Contrary to models with separable preferences in which the wealth of agents with incorrect beliefs vanishes in...

A discrete-time dynamic asset-pricing model specifies the economic rationale for a rich array of price dynamics. Two boundedly-rational investors with different risk preferences trade periodically, where excess supply is cleared by a tâtonnement. Cast at the core of asset-pricing modelling,...

We study the emergence of bubbles in a laboratory experiment with large groups of individuals. The realized price is the aggregation of the forecasts of a group of individuals, with positive expectations feedback through speculative demand. When prices deviate from fundamental value, a random...

The volume of Initial Coin Offerings has risen steeply with an all-time high market capitalisation of close to USD 1 trillion in December 2017. Since then the digital asset market has slumped, retreating to merely approximately USD 200 billion in mid-2018. Stakeholders of the crypto industry...