Irrational exuberance, entrepreneurial finance and public policy

Marta Coelho, David de Meza and Diane J. Reyniers

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Unrealistic optimism is a well documented phenomenon. This paper argues that it is important in many economic contexts. Focusing on start-up finance for businesses, optimism may be responsible for or consistent with features such as credit rationing or redlining that are normally taken as symptoms of under-provision of finance requiring intervention to expand lending. Optimism leads to the opposite conclusion, at least if it is legitimate to use fiscal policy to counteract systematic error. The paper reports on an experiment in which, due to optimism, the lower the prizes to entrepreneurial activity the higher the subject's expected income.

Keywords: unrealistic optimism; finance; policy; experiments (search for similar items in EconPapers)
JEL-codes: E6 (search for similar items in EconPapers)
Date: 2004-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Published in International Tax and Public Finance, August, 2004, 11(4), pp. 391-417. ISSN: 0927-5940

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http://eprints.lse.ac.uk/17279/ Open access version. (application/pdf)

Related works:
Journal Article: Irrational Exuberance, Entrepreneurial Finance and Public Policy (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:17279

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