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American Economic Journal: Microeconomics: Vol. 2 No. 1 (February 2010)

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Investor Sentiments

Article Citation

Izmalkov, Sergei, and Muhamet Yildiz. 2010. "Investor Sentiments." American Economic Journal: Microeconomics, 2(1): 21-38.

DOI: 10.1257/mic.2.1.21

Abstract

We consider a general class of games that have been used to model many economic problems where players' sentiments are believed to play an important role. Dropping the common prior assumption, we identify the relevant notion of sentiments for strategic behavior in these games. This notion is tied to how likely a player thinks that some other player has a more optimistic outlook than himself when they obtain their private information. Under this notion, we show that sentiments have a profound effect on strategic outcomes -- even with vanishing uncertainty. (JEL C73, D82, D83, G11)

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Authors

Izmalkov, Sergei (New Economic School, Moscow)
Yildiz, Muhamet (MIT and Institute for Advanced Study, Princeton, NJ)

JEL Classifications

C73: Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
D82: Asymmetric and Private Information
D83: Search; Learning; Information and Knowledge; Communication; Belief
G11: Portfolio Choice; Investment Decisions

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