Title

Rational Agents and Irrational Bubbles

Document Type

Book Chapter

Publication Title

Handbook of Investors' Behavior during Financial Crises

Publication Date

1-1-2017

Abstract

We present a theoretical model demonstrating formation, growth, and crushes of bubbles. Our model does not rely on overconfidence, "animal spirits," or any sort of naïve market participants. We show how rational traders knowingly and willingly participate in bubbles markets. We also demonstrate how bubbles burst and examine endogenous as well as exogenous forces responsible for the collapse. This model has broad appeal as it offers an explanation for the important economic phenomena of business and market cycles.

First Page

113

Last Page

127

DOI

10.1016/B978-0-12-811252-6.00007-4

ISBN

9780128112533,9780128112526

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