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Investor Sentiments

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  • Sergei Izmalkov

    ()
    (New Economic School)

  • Muhamet Yildiz

    ()
    (MIT)

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.

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Bibliographic Info

Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0138.

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Length: 19 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:cfr:cefirw:w0138

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References

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  1. Carlsson, H. & Damme, E.E.C. van, 1990. "Global games and equilibrium selection," Discussion Paper 1990-52, Tilburg University, Center for Economic Research.
  2. 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.
  3. 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.
  4. Stephen Morris, . ""Speculative Investor Behavior and Learning''," CARESS Working Papres 95-13, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  5. 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.
  6. Abhijit Banerjee & Rohini Somanathan, 2001. "A Simple Model Of Voice," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 189-227, February.
  7. David M. Frankel & Stephen Morris & Ady Pauzner, 2001. "Equilibrium Selection in Global Games with Strategic Complementarities," Cowles Foundation Discussion Papers 1336, Cowles Foundation for Research in Economics, Yale University.
  8. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November.
  9. Jakub Steiner & Colin Stewart, 2006. "Contagion through Learning," ESE Discussion Papers 151, Edinburgh School of Economics, University of Edinburgh, revised 10 Aug 2007.
  10. Muhamet Yildiz, 2007. "Wishful Thinking in Strategic Environments," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 319-344.
  11. Van Zandt, Timothy & Vives, Xavier, 2003. "Monotone Equilibria in Bayesian Games of Strategic Complementarities," CEPR Discussion Papers 4103, C.E.P.R. Discussion Papers.
  12. 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.
  13. Ivan Werning & George-Marios Angeletos, 2005. "Crises and Prices: Information Aggregation, Multiplicity and Volatility," 2005 Meeting Papers 284, Society for Economic Dynamics.
  14. 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.
  15. Muhamet Yildiz, 2003. "Bargaining without a Common Prior-An Immediate Agreement Theorem," Econometrica, Econometric Society, vol. 71(3), pages 793-811, 05.
  16. Olga Shurchkov, 2013. "Coordination and learning in dynamic global games: experimental evidence," Experimental Economics, Springer, vol. 16(3), pages 313-334, September.
  17. Van den Steen, Eric, 2003. "Organizational Beliefs and Managerial Vision," Working papers 4224-01, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  18. Dekel, Eddie & Fudenberg, Drew & Levine, David, 2004. "Learning to Play Bayesian Games," Scholarly Articles 3200612, Harvard University Department of Economics.
  19. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
  20. Stephen Morris & Hyun Song Shin, 2007. "Common Belief Foundations of Global Games," Levine's Bibliography 122247000000001638, UCLA Department of Economics.
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Citations

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Cited by:
  1. Wolfgang Kuhle, 2013. "A Global Game with Heterogenous Priors," Papers 1312.7860, arXiv.org.
  2. Oh, Frederick Dongchuhl, 2013. "Contagion of a liquidity crisis between two firms," Journal of Financial Economics, Elsevier, vol. 107(2), pages 386-400.
  3. Mathevet, Laurent, 2012. "Beliefs and rationalizability in games with complementarities," MPRA Paper 36032, University Library of Munich, Germany.
  4. Laurent Mathevet, 2010. "A contraction principle for finite global games," Economic Theory, Springer, vol. 42(3), pages 539-563, March.
  5. Olga Shurchkov, 2013. "Coordination and learning in dynamic global games: experimental evidence," Experimental Economics, Springer, vol. 16(3), pages 313-334, September.
  6. Stephen Morris & Hyun Song Shin, 2007. "Common Belief Foundations of Global Games," Levine's Bibliography 122247000000001638, UCLA Department of Economics.

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