Uncertainty, Expectations, and Financial Instability: Reviving Allais's Lost Theory of Psychological Time

Eric Barthalon

ISBN 10: 0231166281 / ISBN 13: 9780231166287

Published by Columbia University Press, 2014

About this Item

Hardcover, xlvi + 396 pages, NOT ex-library. Book is clean and bright throughout, with unmarked text, free of inscriptions and stamps, firmly bound. Minor handling wear. Bright untorn dust jacket. -- This work seeks to revive and re-examine the neglected economic theories of Nobel laureate Maurice Allais, arguing they provide a powerful explanation for financial instability. The author posits that Allais's core concept of "psychological time" - the idea that human perception of time is subjective and influenced by memory and expectations - is the key to understanding market dynamics. The book contrasts this with mainstream models based on rational expectations, arguing that Allais's framework better accounts for speculative bubbles, market panics, and the cyclical nature of credit. It serves as a major re-interpretation of a key thinker and a critique of modern macroeconomic and financial theory. -- Maurice Allais (1911-2010) was a French physicist and economist who was awarded the Nobel Memorial Prize in Economic Sciences in 1988 for his "pioneering contributions to the theory of markets and efficient utilization of resources." Despite this recognition, his more unconventional and psychologically-grounded work on monetary dynamics, risk, and human perception of time - which this book focuses on - was largely ignored by the mainstream, English-speaking economic profession. He is often considered one of the great, overlooked figures of 20th-century economic thought.

Seller Inventory # 011447

Bibliographic Details

• Title: Uncertainty, Expectations, and Financial Instability: Reviving Allais's Lost Theory of Psychological Time
• Publisher: Columbia University Press
• Publication Date: 2014
• Language: English
• ISBN 10: 0231166281
• ISBN 13: 9780231166287
• Binding: Hardcover
• Edition: 1st Edition
• Condition: Near Fine
• Dust Jacket Condition: Near Fine

About this title

Synopsis

Eric Barthalon applies the neglected theory of psychological time and memory decay of Nobel Prize–winning economist Maurice Allais (1911–2010) to model investors' psychology in the present context of recurrent financial crises. Shaped by the behavior of the demand for money during episodes of hyperinflation, Allais's theory suggests economic agents perceive the flow of clocks' time and forget the past at a context-dependent pace: rapidly in the presence of persistent and accelerating inflation and slowly in the event of the opposite situation. Barthalon recasts Allais's work as a general theory of "expectations" under uncertainty, narrowing the gap between economic theory and investors' behavior.

Barthalon extends Allais's theory to the field of financial instability, demonstrating its relevance to nominal interest rates in a variety of empirical scenarios and the positive nonlinear feedback that exists between asset price inflation and the demand for risky assets. Reviewing the works of the leading protagonists in the expectations controversy, Barthalon exposes the limitations of adaptive and rational expectations models and, by means of the perceived risk of loss, calls attention to the speculative bubbles that lacked the positive displacement discussed in Kindleberger's model of financial crises. He ultimately extrapolates Allaisian theory into a pragmatic approach to investor behavior and the natural instability of financial markets. He concludes with the policy implications for governments and regulators. Balanced and coherent, this book will be invaluable to researchers working in macreconomics, financial economics, behavioral finance, decision theory, and the history of economic thought.

About the Author

Eric Barthalon is the global head of capital markets and tactical asset allocation at Allianz Investment Management in Munich, Germany. Throughout more than three decades of exposure to capital markets in global financial institutions (at Paribas and Allianz), in which he has focused constantly on asset management, Barthalon has sought to blend operational and research responsibilities, action with theoretical reflection. He received a Masters in Management from ESCP–Europe.