Psychology-Based Models of Asset Prices and Trading Volume

Identifying Price Informativeness

“…This is an important consideration, since it allows for rich patterns of belief formation. See Barberis (2018) and Gennaioli and Shleifer (2018) for recent accounts of the importance of non-fully rational expectation formation. That said, any results presented in the form of Kalman gains rely on the assumption that the external observer faces Gaussian uncertainty and uses Bayesian updating.…”

Policy News and Stock Market Volatility

“…Another prominent line, also partly motivated by Shiller, stresses non-rational beliefs, limits to arbitrage, and fads that move equity prices in ways not fully tethered to real investment opportunities. 2 See Cochrane (2017) and Barberis (2018) for recent reviews.…”

Structural Behavioral Economics

“…A second set of applications is, instead, exactly focused on risk. In finance, Nicholas Barberis, in a series of influential papers, has made the case that prospect theory can make sense of a variety of anomalies, including the equity premium and the performance of IPOs (Barberis, Huang, and Santos, 2001; Barberis, 2018). For insurance choice, Sydnor (2010) and then Barseghyan et al (2013) put forward a model to explain the preference of insurers for low-deductible plans even when the extra premium is high.…”

“…Barseghyan et al (2013) for example attributes much of the preference for low-deductible insurance to the overweighting of small probabilities. Barberis (2018) makes the case that probability weighting can explain preference for skewed investments, such as IPOs.…”