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Bubbles are rational

Author

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  • Pierre Lescanne

    (LIP - Laboratoire de l'Informatique du Parallélisme - ENS de Lyon - École normale supérieure de Lyon - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - Inria - Institut National de Recherche en Informatique et en Automatique - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)

Abstract

As we show using the notion of equilibrium in the theory of infinite sequential games, bubbles and escalations are rational for economic and environmental agents, who believe in an infinite world. This goes against a vision of a self regulating, wise and pacific economy in equilibrium. In other words, in this context, equilibrium is not a synonymous of stability. We attempt to draw from this statement methodological consequences and a new approach to economics. To the mindware of economic agents (a concept due to cognitive psychology) we propose to add coinduction to properly reason on infinite games. This way we refine the notion of rationality.

Suggested Citation

  • Pierre Lescanne, 2013. "Bubbles are rational," Working Papers ensl-00819188, HAL.
    • Handle: RePEc:hal:wpaper:ensl-00819188
    Note: View the original document on HAL open archive server: https://ens-lyon.hal.science/ensl-00819188
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    Keywords

    coinduction; economic game; infinite game; sequential game; bubble; escalation; microeconomics; speculative bubble; induction; coinduction.;
    All these keywords.

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