Bordalo, P., Gennaioli, N., & Shleifer, A. (2016). Diagnostic Expectations and Credit Cycles.

We present a model of credit cycles arising from diagnostic expectations – a belief formation mechanism based on Kahneman and Tversky’s (1972) representativeness heuristic. In this formulation, when forming their beliefs agents overweight future outcomes that have become more likely in light of incoming data… [Read More]