The DOI matches its Crossref record; 60 of the 60 references it cites were found in a registry or an index.
Diagnostic Expectations and Credit Cycles
Open accessAbstract
We present a model of credit cycles arising from diagnostic expectations—a belief formation mechanism based on Kahneman and Tversky's representativeness heuristic. Diagnostic expectations overweight future outcomes that become more likely in light of incoming data. The expectations formation rule is forward looking and depends on the underlying stochastic process, and thus is immune to the Lucas critique. Diagnostic expectations reconcile extrapolation and neglect of risk in a unified framework. In our model, credit spreads are excessively volatile, overreact to news, and are subject to predictable reversals. These dynamics can account for several features of credit cycles and macroeconomic volatility.
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Cites
Judgment under Uncertainty: Heuristics and Biases
Tversky, A., & Kahneman, D. (1975) · Utility, Probability, and Human Decision Making · doi:10.1007/978-94-010-1834-0_8 · Cited by 22,650
(2011) · Cited by 14,317
Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency
JEGADEESH, N., & TITMAN, S. (1993) · The Journal of Finance · doi:10.1111/j.1540-6261.1993.tb04702.x · Cited by 11,584
Rational Expectations and the Theory of Price Movements
Muth, J. F. (1961) · Econometrica · doi:10.2307/1909635 · Cited by 5,594
Subjective probability: A judgment of representativeness
Kahneman, D., & Tversky, A. (1972) · Cognitive Psychology · doi:10.1016/0010-0285(72)90016-3 · Cited by 4,851
Kiyotaki, N., & Moore, J. (1997) · Journal of Political Economy · doi:10.1086/262072 · Cited by 4,694
Agency Costs, Net Worth, And Business Fluctuations
Bernanke, B., Gertler, M., Bernanke, B., & Gertler, M. (1988) · Unknown · doi:10.22004/ag.econ.292693 · Cited by 4,386
A model of investor sentiment /
Barberis, N., Vishny, R. W., Shleifer, A., & Research., N. B. O. E. (1997) · University of Michigan Library Repository · Cited by 4,013
Self-citationA Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets
Hong, H., & Stein, J. C. (1999) · The Journal of Finance · doi:10.1111/0022-1082.00184 · Cited by 4,001
Extensional versus intuitive reasoning: The conjunction fallacy in probability judgment.
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Cited by
Overreaction in Macroeconomic Expectations
Bordalo, P., Gennaioli, N., Ma, Y., & Shleifer, A. (2020) · American Economic Review · doi:10.1257/aer.20181219 · Cited by 608
Self-citationDiagnostic Expectations and Stock Returns
BORDALO, P., GENNAIOLI, N., PORTA, R. L., & SHLEIFER, A. (2019) · The Journal of Finance · doi:10.1111/jofi.12833 · Cited by 396
Self-citationHome Price Expectations and Behaviour: Evidence from a Randomized Information Experiment
Armona, L., Fuster, A., & Zafar, B. (2019) · The Review of Economic Studies · doi:10.1093/restud/rdy038 · Cited by 319
Bank Capital Redux: Solvency, Liquidity, and Crisis
Jordà, Ò., Richter, B., Schularick, M., & Taylor, A. (2017) · doi:10.3386/w23287 · Cited by 64
Metadata
- Authors
- BORDALO, P., GENNAIOLI, N., & SHLEIFER, A.
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 2018-01-26
- Volume
- 73
- Issue
- 1
- Pages
- 199-227
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W2294838456
- Cited by
- 608
- References
- 60
- FWCI
- 63.05
- Type
- journal article
- Language
- en
- Open access
- green
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