Mutual Illusions and Financing New Technologies: Two-Sided Informational Cascades

Bulat Sanditov, Robin Cowan and Clemens Kool

No 7, Research Memorandum from Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT)

Abstract: A model in which agents on both sides of the market are subject to informational cascades isexamined. In an uncertain environment with asymmetric information agents tend to beoveroptimistic about the state of the world, a result that fits with empirical evidence on financingnew technologies. This overoptimism based on mutual illusions makes the system vulnerable totwo-sided bubbles, and may be one of the reasons behind “dot com” crash.

Keywords: economics of technology (search for similar items in EconPapers)
Date: 2002
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