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Investor Sentiments

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  • Sergei Izmalkov
  • Muhamet Yildiz

Abstract

We consider a general class of games that have been used to model many economic problems where players' sentiments are believed to play an important role. Dropping the common prior assumption, we identify the relevant notion of sentiments for strategic behavior in these games. This notion is tied to how likely a player thinks that some other player has a more optimistic outlook than himself when they obtain their private information. Under this notion, we show that sentiments have a profound effect on strategic outcomes -- even with vanishing uncertainty. (JEL C73, D82, D83, G11)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.1.21
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 2 (2010)
Issue (Month): 1 (February)
Pages: 21-38

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Handle: RePEc:aea:aejmic:v:2:y:2010:i:1:p:21-38

Note: DOI: 10.1257/mic.2.1.21
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References

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  1. Stephen Morris, . "Speculative Investor Behavior and Learning," Penn CARESS Working Papers d12f7936881423171f6589501, Penn Economics Department.
  2. Frankel, David M. & Morris, Stephen & Pauzner, Ady, 2003. "Equilibrium Selection in Global Games with Strategic Complementarities," Staff General Research Papers 11920, Iowa State University, Department of Economics.
  3. Muhamet Yildiz, 2003. "Bargaining without a Common Prior-An Immediate Agreement Theorem," Econometrica, Econometric Society, vol. 71(3), pages 793-811, 05.
  4. Carlsson, H. & Van Damme, E., 1990. "Global Games And Equilibrium Selection," Papers 9052, Tilburg - Center for Economic Research.
  5. Eric Van den Steen, 2005. "Organizational Beliefs and Managerial Vision," Journal of Law, Economics and Organization, Oxford University Press, vol. 21(1), pages 256-283, April.
  6. Stephen Morris & Hyun Song Shin, 2007. "Common Belief Foundations of Global Games," Levine's Bibliography 122247000000001638, UCLA Department of Economics.
  7. Iván Werning & George-Marios Angeletos, 2006. "Crises and Prices: Information Aggregation, Multiplicity, and Volatility," American Economic Review, American Economic Association, vol. 96(5), pages 1720-1736, December.
  8. Van Zandt, Timothy & Vives, Xavier, 2003. "Monotone Equilibria in Bayesian Games of Strategic Complementarities," CEPR Discussion Papers 4103, C.E.P.R. Discussion Papers.
  9. Frank Heinemann & Rosemarie Nagel & Peter Ockenfels, 2004. "The Theory of Global Games on Test: Experimental Analysis of Coordination Games with Public and Private Information," Econometrica, Econometric Society, vol. 72(5), pages 1583-1599, 09.
  10. Morris, S & Song Shin, H, 1996. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," Economics Papers 126, Economics Group, Nuffield College, University of Oxford.
  11. Eddie Dekel & Drew Fudenberg & David K. Levine, 2001. "Learning to Play Bayesian Games," Harvard Institute of Economic Research Working Papers 1926, Harvard - Institute of Economic Research.
  12. Muhamet Yildiz, 2007. "Wishful Thinking in Strategic Environments," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 319-344.
  13. Abhijit Banerjee & Rohini Somanathan, 2001. "A Simple Model Of Voice," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 189-227, February.
  14. Olga Shurchkov, 2013. "Coordination and learning in dynamic global games: experimental evidence," Experimental Economics, Springer, vol. 16(3), pages 313-334, September.
  15. Jakub Steiner & Colin Stewart, 2006. "Contagion through Learning," ESE Discussion Papers 151, Edinburgh School of Economics, University of Edinburgh, revised 10 Aug 2007.
  16. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November.
  17. Jonathan Weinstein & Muhamet Yildiz, 2007. "A Structure Theorem for Rationalizability with Application to Robust Predictions of Refinements," Econometrica, Econometric Society, vol. 75(2), pages 365-400, 03.
  18. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
  19. Harrison, J Michael & Kreps, David M, 1978. "Speculative Investor Behavior in a Stock Market with Heterogeneous Expectations," The Quarterly Journal of Economics, MIT Press, vol. 92(2), pages 323-36, May.
  20. Simon Gervais & Itay Goldstein, 2007. "The Positive Effects of Biased Self-Perceptions in Firms," Review of Finance, European Finance Association, vol. 11(3), pages 453-496.
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Citations

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Cited by:
  1. Stephen Morris & Hyun Song Shin, 2007. "Common Belief Foundations of Global Games," Levine's Bibliography 122247000000001638, UCLA Department of Economics.
  2. Olga Shurchkov, 2013. "Coordination and learning in dynamic global games: experimental evidence," Experimental Economics, Springer, vol. 16(3), pages 313-334, September.
  3. Oh, Frederick Dongchuhl, 2013. "Contagion of a liquidity crisis between two firms," Journal of Financial Economics, Elsevier, vol. 107(2), pages 386-400.
  4. Mathevet, Laurent, . "A contraction principle for finite global games," Working Papers 1243, California Institute of Technology, Division of the Humanities and Social Sciences.
  5. Mathevet, Laurent, 2012. "Beliefs and rationalizability in games with complementarities," MPRA Paper 36032, University Library of Munich, Germany.
  6. Wolfgang Kuhle, 2013. "A Global Game with Heterogenous Priors," Papers 1312.7860, arXiv.org.

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