Sentiment-driven limit cycles and chaos

Orlando Gomes and J. C. Sprott ()
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J. C. Sprott: University of Wisconsin-Madison

Journal of Evolutionary Economics, 2017, vol. 27, issue 4, No 4, 729-760

Abstract: Abstract A recent strand of macroeconomic literature has placed sentiment fluctuations at the forefront of the academic debate about the foundations of business cycles. Waves of optimism and pessimism influence the decisions of investors and consumers, and they might therefore be interpreted as a driving force for the performance of the economy in the short term. In this context, two questions regarding the formation and evolution of psychological moods in an economic setting gain relevance: First, how can we model the process of transmission of sentiments across economic agents? Second, is this process capable of generating endogenous and persistent fluctuations? This paper answers these two questions by proposing a simple and intuitive continuous-time dynamic sentiment spreading model based on the rumor propagation literature. As agents contact with one another, endogenous fluctuations are likely to emerge, with trajectories of sentiment shares potentially exhibiting periodic cycles and chaotic behavior.

Keywords: Sentiments; Waves of optimism and pessimism; Endogenous fluctuations; Limit cycles; Chaos (search for similar items in EconPapers)
JEL-codes: C62 E03 E32 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s00191-017-0497-5

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