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Investor Sentiments

Author

Listed:
  • 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)

Suggested Citation

  • Sergei Izmalkov & Muhamet Yildiz, 2010. "Investor Sentiments," American Economic Journal: Microeconomics, American Economic Association, vol. 2(1), pages 21-38, February.
    • 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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    Citations

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    Cited by:

    1. Chanelle Duley & Prasanna Gai, 2020. "When the penny doesn't drop - Macroeconomic tail risk and currency crises," National Institute of Economic and Social Research (NIESR) Discussion Papers 520, National Institute of Economic and Social Research.
    2. Laurent Mathevet, 2010. "A contraction principle for finite global games," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 42(3), pages 539-563, March.
    3. Mathevet, Laurent, 2014. "Beliefs and rationalizability in games with complementarities," Games and Economic Behavior, Elsevier, vol. 85(C), pages 252-271.
    4. Oh, Frederick Dongchuhl, 2013. "Contagion of a liquidity crisis between two firms," Journal of Financial Economics, Elsevier, vol. 107(2), pages 386-400.
    5. Olga Shurchkov, 2013. "Coordination and learning in dynamic global games: experimental evidence," Experimental Economics, Springer;Economic Science Association, vol. 16(3), pages 313-334, September.
    6. Szkup, Michal & Trevino, Isabel, 2020. "Sentiments, strategic uncertainty, and information structures in coordination games," Games and Economic Behavior, Elsevier, vol. 124(C), pages 534-553.
    7. Shurchkov, Olga, 2016. "Public announcements and coordination in dynamic global games: Experimental evidence," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 61(C), pages 20-30.
    8. Morris, Stephen & Shin, Hyun Song & Yildiz, Muhamet, 2016. "Common belief foundations of global games," Journal of Economic Theory, Elsevier, vol. 163(C), pages 826-848.
    9. Chanelle Duley & Prasanna Gai, 2023. "Macroeconomic tail risk, currency crises and the inter‐war gold standard," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(4), pages 1551-1582, November.
    10. Dominik Grafenhofer & Wolfgang Kuhle, 2019. "Observing Actions in Bayesian Games," Papers 1904.10744, arXiv.org.
    11. Dominik Grafenhofer & Wolfgang Kuhle, 2021. "Observing Actions in Global Games," Papers 2111.10554, arXiv.org.
    12. Wolfgang Kuhle, 2013. "A Global Game with Heterogenous Priors," Papers 1312.7860, arXiv.org.
    13. George-Marios Angeletos & Chen Lian, 2016. "Incomplete Information in Macroeconomics: Accommodating Frictions in Coordination," NBER Working Papers 22297, National Bureau of Economic Research, Inc.
    14. Benjamin Golub & Stephen Morris, 2020. "Expectations, Networks, and Conventions," Papers 2009.13802, arXiv.org.
    15. Angeletos, G.-M. & Lian, C., 2016. "Incomplete Information in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1065-1240, Elsevier.

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    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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