This paper presents an intuitive way to represent Keynes's theory of expectations and its implications for financial markets. Further to a suggestion by Ellsberg, a coherent expectational function for the valuation of assets under Keynesian uncertainty is derived. By following the thread that goes from the non-numerical probabilities of the Treatise on Probability to the expectations of the General Theory, this paper suggests that a function accounting for Keynesian expectations can be modelled by using a class of the so-called ϵ-contaminated probability priors, where the parameter ϵ is suggestive of the quality of information about the relevant odds.
Basili, M., Zappia, C. (2021). Financial markets and Keynes's long-term expectations. CAMBRIDGE JOURNAL OF ECONOMICS, 45(5), 1047-1067 [10.1093/cje/beab013].
Financial markets and Keynes's long-term expectations
Basili M.
;Zappia C.
2021-01-01
Abstract
This paper presents an intuitive way to represent Keynes's theory of expectations and its implications for financial markets. Further to a suggestion by Ellsberg, a coherent expectational function for the valuation of assets under Keynesian uncertainty is derived. By following the thread that goes from the non-numerical probabilities of the Treatise on Probability to the expectations of the General Theory, this paper suggests that a function accounting for Keynesian expectations can be modelled by using a class of the so-called ϵ-contaminated probability priors, where the parameter ϵ is suggestive of the quality of information about the relevant odds.File | Dimensione | Formato | |
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https://hdl.handle.net/11365/1181304