Barthalon Uncertainty, Expectations, and Financial Instability

Reviving Allais's Lost Theory of Psychological Time
1. Auflage 2015
ISBN: 978-0-231-53830-5
Verlag: De Gruyter
Format: EPUB
Kopierschutz: 6 - ePub Watermark

E-Book, Englisch, 448 Seiten, Format (B × H): 152 mm x 229 mm

Eric Barthalon applies the neglected theory of psychological time and memory decay of Nobel Prize–winning economist Maurice Allais (1911–2010) to model investors' psychology in the present context of recurrent financial crises. Shaped by the behavior of the demand for money during episodes of hyperinflation, Allais's theory suggests economic agents perceive the flow of clocks' time and forget the past at a context-dependent pace: rapidly in the presence of persistent and accelerating inflation and slowly in the event of the opposite situation. Barthalon recasts Allais's work as a general theory of "expectations" under uncertainty, narrowing the gap between economic theory and investors' behavior.

Barthalon extends Allais's theory to the field of financial instability, demonstrating its relevance to nominal interest rates in a variety of empirical scenarios and the positive nonlinear feedback that exists between asset price inflation and the demand for risky assets. Reviewing the works of the leading protagonists in the expectations controversy, Barthalon exposes the limitations of adaptive and rational expectations models and, by means of the perceived risk of loss, calls attention to the speculative bubbles that lacked the positive displacement discussed in Kindleberger's model of financial crises. He ultimately extrapolates Allaisian theory into a pragmatic approach to investor behavior and the natural instability of financial markets. He concludes with the policy implications for governments and regulators. Balanced and coherent, this book will be invaluable to researchers working in macreconomics, financial economics, behavioral finance, decision theory, and the history of economic thought.

Autoren/Hrsg.

Barthalon, Eric

Fachgebiete

• Sozialwissenschaften Psychologie Psychologische Disziplinen Wirtschafts-, Arbeits- und Organisationspsychologie
• Wirtschaftswissenschaften Volkswirtschaftslehre Volkswirtschaftslehre Allgemein Makroökonomie
• Interdisziplinäres Wissenschaften Wissenschaften: Forschung und Information Entscheidungstheorie, Sozialwahltheorie
• Wirtschaftswissenschaften Finanzsektor & Finanzdienstleistungen Internationale Finanzmärkte
• Wirtschaftswissenschaften Volkswirtschaftslehre Internationale Wirtschaft Internationale Finanzmärkte
• Wirtschaftswissenschaften Volkswirtschaftslehre Volkswirtschaftslehre Allgemein Verhaltensökonomik
• Wirtschaftswissenschaften Volkswirtschaftslehre Volkswirtschaftslehre Allgemein Geschichte der VWL

Inhaltsverzeichnis

List of Tables
List of Figures
Preface
Acknowledgments
Introduction
Glossary of Mathematical Symbols in Order of Appearance
Part 1. The Progressive Emergence of Expectations in Economic Theory
1. Expectations Before the Rational Expectations Revolution
2. Rational Expectations Are Endogenous to and Abide by ''the'' Model
Part 2. Allais's Theory of "Expectations" Under Uncertainty
3. Macrofoundations of Monetary Dynamics
4. Microfoundations of Monetary Dynamics: The HRL Formulation of the Demand for Money
5. The Fundamental Equation of Monetary Dynamics
6. Joint Testing of the HRL Formulation of the Demand for Money and of the Fundamental Equation of Monetary Dynamics
Part 3. Transposing the HRL Formulation to Financial Markets: Preliminary Steps
7. Allais's HRL Formulation: Illustration of Its Dynamic Properties by an Example of Hyperinflation (Zimbabwe 2000-2008)
8. The HRL Formulation and Nominal Interest Rates
Part 4. The HRL Formulation and Financial Instability
9. Perceived Returns and the Modeling of Financial Behavior
10. Downside Potential Under Risk: The Allais Paradox and Its Conflicting Interpretations
11. Downside Potential Under Uncertainty: The Perceived Risk of Loss
12. Conclusion
Appendix A: How to Compute Zn and zn
Appendix B: Nominal Interest Rates and the Perceived Rate of Nominal Growth
Appendix C: Proofs
Appendix D: Comparison Between the Kalman Filter and Allais's HRL Algorithm
Appendix E: A Note on the Theory of Intertemporal Choice
Appendix F: Allais's Cardinal Utility Function
Notes
Bibliography
Index

Leseproben

Read the first chapter, "Expectations Before the Rational Expectations Revolution":

Über Autor(innen)

Eric Barthalon is the global head of capital markets and tactical asset allocation at Allianz Investment Management in Munich, Germany. Throughout more than three decades of exposure to capital markets in global financial institutions (at Paribas and Allianz), in which he has focused constantly on asset management, Barthalon has sought to blend operational and research responsibilities, action with theoretical reflection. He received a Masters in Management from ESCP–Europe.