Michael Goldberg: Instability in Financial Markets 2/5

The video explores imperfect knowledge economics, focusing on asset price swings and market behavior. It critiques existing economic models, highlighting their limitations in accounting for nonroutine changes. The introduction of endogenous prospect theory offers a new perspective on modeling expectations and market dynamics. The video discusses the importance of revising forecasting strategies and the implications of these revisions on asset prices. It concludes with the model's predictions and its potential to explain irregular market swings.

What evidence supports the claim that both fundamentals and psychological factors are important in asset markets?

How do market participants' forecasting strategies evolve over time according to the text?

What implications does the model discussed have for understanding the dynamics of asset markets?

What does the text suggest about the predictability of market swings and their timing?