Optimism, pessimism and financial bubbles

Bertrand Wigniolle

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: This paper shows that it is possible to extend the scope of the existence of rational bubbles when uncertainty is introduced associated with rank-dependent expected utility. This RDU assumption can be viewed as a transformation of probabilities depending on the pessimism/optimism of the agent. The results show that pessimism favors the existence of deterministic bubbles, when optimism may promote the existence of stochastic bubbles. Moreover, under pessimism, the RDU assumption may generate multiple bubbly equilibria. The RDU assumption also leads to new conditions ensuring the (absence of) Pareto-optimality of the competitive equilibrium without bubbles. These conditions still govern the existence of bubbles.

Keywords: RDU preferences; Bulles rationnelles; préférences RDU.; Rational bubbles; RDU preferences. (search for similar items in EconPapers)
Date: 2012-02
New Economics Papers: this item is included in nep-mic and nep-upt
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00673892v1
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Published in 2012

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Related works:
Journal Article: Optimism, pessimism and financial bubbles (2014)
Working Paper: Optimism, pessimism and financial bubbles (2014)
Working Paper: Optimism, pessimism and financial bubbles (2014)
Working Paper: Optimism, pessimism and financial bubbles (2014)
Working Paper: Optimism, pessimism and financial bubbles (2012)
Working Paper: Optimism, pessimism and financial bubbles (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-00673892

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