Optimism, pessimism and financial bubbles

Bertrand Wigniolle

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

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: Rational bubbles; RDU preferences (search for similar items in EconPapers)
JEL-codes: D81 D9 G1 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2012-02
New Economics Papers: this item is included in nep-mic and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://mse.univ-paris1.fr/pub/mse/CES2012/12005.pdf (application/pdf)

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)
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:mse:cesdoc:12005

Access Statistics for this paper

More papers in Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne Contact information at EDIRC.
Bibliographic data for series maintained by Lucie Label ().