The Effects of Demand and Interest Rates on Investments, Evidence of Overinvestment from Two Behavioral Experiments

Christian A. Conrad

Applied Economics and Finance, 2022, vol. 9, issue 1, 19-28

Abstract: This article analyzes the causes of overinvestment and thus investment cycles with two behavioral experiments. In the experimental simulations increases in demand and cuts in interest rates increased unit profits, which led to uncoordinated and thus collectively too high investments (collective error). This made it possible to demonstrate collective errors that led to overinvestment and investment cycles (boom and bust cycles). Central banks and companies should take this into account when making their decisions. The experiments show the fundamental problem of uncoordinated supply adjustment and a tendency on the part of market participants to neglect the behavior of other actors and to underestimate the influence of the market on their own investment decisions.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://redfame.com/journal/index.php/aef/article/download/5452/5654 (application/pdf)
https://redfame.com/journal/index.php/aef/article/view/5452 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rfa:aefjnl:v:9:y:2022:i:1:p:19-28

Access Statistics for this article

More articles in Applied Economics and Finance from Redfame publishing Contact information at EDIRC.
Bibliographic data for series maintained by Redfame publishing ().