Games and Decisions 2

Understanding the Financial Crisis in an Extended Rational Expectations Framework

speaker: Elia Sartori (Università Bocconi)

abstract: How could a rational and benevolent policymaker allow the banking sector to reach massive exposure to subprime mortgages? No analysis conducted inside the standard rational expectation assumption of knowl- edge of the true data generating process can answer this simple question: either some sort of bounded rationality or a distorted system of incentives promoting political short- terminism are usually invoked in economic models that attempt to explain occurrence of the crisis. In this dissertation I show how the concept of selfconfirming equilibrium (which is incompatible with rational expectations assumption) can be used to explain the crisis as the outcome of steady state decision making of a smart, benevolent and all powerful social planner who receives only partially informative signals.

timetable:
Mon 7 Jul, 17:15 - 17:45, Sala Azzurra
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