Rational Bubbles and Middlemen

Awaya, Yu; Iwasaki, Kohei; Watanabe, Makoto

doi:10.2139/ssrn.3380383

Cited by 4 publications

(3 citation statements)

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“…The government's commitment to policy and program implementation starts from how procedures and rules can be well socialized, and it will affect both the implementers and the public as a target. If the preconditions on its implementation cannot be achieved properly, then there will be asymmetric information that could cause rumors such as bubble model theory that is expected to occur and short-lived is getting bigger and not under the control (Awaya et al, 2019). Other policies such as increasing market competitiveness can encourage analysis of individual behavior in the market to lead to its effectiveness (Buso & Hey, 2021).…”

Section: Resultsmentioning

confidence: 99%

Nudge on Choice Architecture: Effectiveness of Economic Recovery Policy and Irrational Behavior Predictions

Rahmawati¹

2022

J. Bina Praja

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Economic recovery policy in low-income communities is a priority of the government in tackling the tidal wave of the economy during the COVID-19 pandemic. This study aims to map the government's priorities and rapid action in its careful planning also implementation. The challenge is how society has a drive about a wide range of choices that have many possibilities, namely maximizing added value to the aid or fulfilling desires that approach irrational behavior. Therefore, encouragement is needed by every individual to choose choices that are in line with the government's policy objectives to eliminate or eliminate extreme poverty. The method used is an analysis of social science and behavioral science with circumplex strategy, which is further analyzed in correlation with quantitative methods using Kendall W. Test analysis and continued double regression. The results showed that encouragement had a positive and insignificant influence on the effectiveness of BLT policies; predictions of irrational behavior have a negative and insignificant influence on the effectiveness of BLT policies; And together, nudge and irrational predictably have a positive and significant influence on the effectiveness of Top Up BLT policies. Recommendations on the encouragement in improving the architecture of choice are the collaboration between the program implementation team and related stakeholders; irrational behavior predictions are anticipating irrational behavior tendencies by understanding the vulnerability of preconditions and conditions in the implementation of the program; the maintenance of the commitment of the central and local government and village government in enforcing regulations.

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Section: Resultsmentioning

confidence: 99%

Nudge on Choice Architecture: Effectiveness of Economic Recovery Policy and Irrational Behavior Predictions

Rahmawati¹

2022

J. Bina Praja

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“…Besides the limited arbitrage literature, there are theoretical approaches for understanding bubbles and crashes such as overlapping generation models (Tirole 1985;Martin and Ventura 2012), asymmetric information bubbles (Allen and Gorton 1993;Awaya, Iwasaki, and Watanabe 2018), and prior heterogeneity (Harrison and Kreps 1978;Che and Sethi 2010;Geanakoplos 2010;Fostel and Geanakoplos 2012;Simsek 2013). 2 In the literature of prior heterogeneity, where traders have different beliefs about the future price movement even if they share the same information, it is commonly assumed that investors are unitarily categorized according to the degree to which they are optimistic about the future price movement.…”

Section: Introductionmentioning

confidence: 99%

Timing Games with Irrational Types: Leverage-Driven Bubbles and Crash-Contingent Claims

Matsushima

2019

The B.E. Journal of Theoretical Economics

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This study investigates strategic aspect of leverage-driven bubbles from the viewpoint of game theory and behavioral finance. Even if a company is unproductive, its stock price grows up according to an exogenous reinforcement pattern. During the bubble, this company raises huge funds by issuing new shares. Multiple arbitrageurs strategically decide whether to ride the bubble by continuing to purchase shares through leveraged finance.We demonstrate two models that are distinguished by whether crash-contingent claim, i. e. contractual agreement such that the purchaser of this claim receives a promised monetary amount if and only if the bubble crashes, is available. We show that the availability of this claim deters the bubble; without crash-contingent claim, the bubble emerges and persists long even if the degree of reinforcement is insufficient. Without crash-contingent claim, high leverage ratio fosters the bubble, while with crash-contingent claim, it rather deters the bubble.We formulate these models as specifications of timing game with irrational types; each player selects a time in a fixed time interval, and the player who selects the earliest time wins the game. We assume that each player is irrational with a small but positive probability. We then prove that there exists the unique Nash equilibrium; according to it, every player never selects the initial time. By regarding arbitrageurs as players, we give careful conceptualizations that are necessary to interpret timing games as models of leverage-driven bubbles.

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“…This situation (asset prices above their fundamental values) is commonly called a bubble; seeAwaya et al (2019) for a recent discussion of the issues and literature related to asset price bubbles.…”

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confidence: 99%