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Mutual Illusions and Financing New Technologies: Two-Sided Informational Cascades

Author

Listed:
  • Sanditov, Bulat
  • Cowan, Robin
  • Kool, Clemens

    (MERIT)

Abstract

A model in which agents on both sides of the market are subject to informational cascades isexamined. In an uncertain environment with asymmetric information agents tend to beoveroptimistic about the state of the world, a result that fits with empirical evidence on financingnew technologies. This overoptimism based on mutual illusions makes the system vulnerable totwo-sided bubbles, and may be one of the reasons behind “dot com” crash.

Suggested Citation

  • Sanditov, Bulat & Cowan, Robin & Kool, Clemens, 2002. "Mutual Illusions and Financing New Technologies: Two-Sided Informational Cascades," Research Memorandum 007, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    • Handle: RePEc:unm:umamer:2002007
    as

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    File URL: https://www.merit.unu.edu/publications/rmpdf/2002/rm2002-007.pdf
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    References listed on IDEAS

    as
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