Heterogeneous expectations and strong uncertainty in a Minskyian model of financial fluctuations

Serena Sordi and Alessandro Vercelli ()

Department of Economic Policy, Finance and Development (DEPFID) University of Siena from Department of Economic Policy, Finance and Development (DEPFID), University of Siena

Abstract: We examine the role of expectations in a model aimed to explain financial fluctuations. The model restates the core of Minsky’s financial instability hypothesis, focusing on the role of expectations. The hypotheses concerning the process of formation and revision of expectations are discussed in light of Keynes’s epistemological view of the behaviour of boundedly rational agents under conditions of strong uncertainty. These hypotheses are formalized by drawing on recent advances in complex dynamics, decision theory and behavioural economics. We show that widespread use of extrapolative expectations by economic agents produces a high degree of financial instability that may lead to a serious financial crisis, and that the use by economic agents of a mix of extrapolative and regressive expectations reduces the dynamical instability of the model but may give rise to complex dynamics.

Keywords: financial instability; heterogeneous expectations; extrapolative expectations; regressive expectations; complex dynamics. (search for similar items in EconPapers)
JEL-codes: C61 D84 G01 (search for similar items in EconPapers)
Date: 2010-12
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://repec.deps.unisi.it/depfid/text1010.pdf (application/pdf)

Related works:
Journal Article: Heterogeneous expectations and strong uncertainty in a Minskyian model of financial fluctuations (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:usi:depfid:1010

Access Statistics for this paper

More papers in Department of Economic Policy, Finance and Development (DEPFID) University of Siena from Department of Economic Policy, Finance and Development (DEPFID), University of Siena Contact information at EDIRC.
Bibliographic data for series maintained by Carlo Zappia ().