Introduction

Biagio Bossone

Chapter Chapter 1 in Bringing Sentiment into Economic Reason, 2026, pp 1-13 from Springer

Abstract: Abstract The introduction sets the stage for the Sentiment-Augmented General Equilibrium (SAGE) framework by identifying a core shortcoming in economic theory: its failure to integrate the roles of human sentiment and intertemporal choice into a unified, microfounded structure. It addresses the segmentation between choice and price theory, finance, and growth theory, and argues that conventional frameworks—such as dynamic stochastic general equilibrium and asset-pricing models—struggle to account for real-world anomalies like prolonged stagnation, asset mispricing, unstable growth, and labor force withdrawal. SAGE addresses this gap by developing a utility-based model in which all assets—including money, bonds, and capital—deliver utility conditional on liquidation costs and price volatility. The chapter introduces the central innovation of treating sentiment not as irrational noise but as a state variable that co-evolves with rational expectations. It outlines how sentiment and reason jointly determine agents’ belief structures and portfolio allocations, which in turn shape macroeconomic equilibria. The introduction presents SAGE as both a conceptual framework and an operational tool, capable of explaining macro-financial phenomena as endogenous responses to sentiment-influenced expectations. Finally, it positions SAGE within a broader scientific ambition: to unify disparate strands of economic thought under a psychologically grounded and empirically relevant theory of decision-making, finance, and growth.

Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:spr:spbchp:978-3-032-08617-4_1

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DOI: 10.1007/978-3-032-08617-4_1

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