Endogenous collapse of resource-rational bubbles

Keiichiro Kobayashi

No 26-001E, CIGS Working Paper Series from The Canon Institute for Global Studies

Abstract: We consider asset-price bubbles with a finite time horizon. Bubbles emerge because of incomplete information on the timing of trades. We analyze investors decision making on the cognitive investment (C-investment) that restores the complete information and show that the bubbles endogenously collapse. With investors having the option of C-investment, the asset price grows acceleratedly, and explodes with a higher probability as it grows higher. The bubbles collapse when the condition for optimality of the C-investment is satisfied, though the C-investment does not actually take place in equilibrium. We consider asset-price bubbles with a finite time horizon. Bubbles emerge because of incomplete information on the timing of trades. We analyze investors decision making on the cognitive investment (C-investment) that restores the complete information and show that the bubbles endogenously collapse. With investors having the option of C-investment, the asset price grows acceleratedly, and explodes with a higher probability as it grows higher. The bubbles collapse when the condition for optimality of the C-investment is satisfied, though the C-investment does not actually take place in equilibrium. We consider asset-price bubbles with a finite time horizon. Bubbles emerge because of incomplete information on the timing of trades. We analyze investors decision making on the cognitive investment (C-investment) that restores the complete information and show that the bubbles endogenously collapse. With investors having the option of C-investment, the asset price grows acceleratedly, and explodes with a higher probability as it grows higher. The bubbles collapse when the condition for optimality of the C-investment is satisfied, though the C-investment does not actually take place in equilibrium. We consider asset-price bubbles with a finite time horizon. Bubbles emerge because of incomplete information on the timing of trades. We analyze investors decision making on the cognitive investment (C-investment) that restores the complete information and show that the bubbles endogenously collapse. With investors having the option of C-investment, the asset price grows acceleratedly, and explodes with a higher probability as it grows higher. The bubbles collapse when the condition for optimality of the C-investment is satisfied, though the C-investment does not actually take place in equilibrium.

Pages: 15
Date: 2026-01
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