Inequity Aversion, Financial Markets and Output Fluctuations
نویسندگان
چکیده
Drawing on recent advances in the study of reference dependent utility we model financial markets as a coordination game with multiple equilibria. Asset valuations may change endogenously through re-coordination which induces fluctuations in output. These fluctuations are shown to be quantitatively relevant and inefficient. JEL-Classification: G12 Acknowledgements: I am grateful to Roger Farmer, Ernst Fehr, Sven Rady and Klaus Schmidt for their comments. Financial support by Deutsche Forschungsgemeinschaft through grant SCHM 1196/2-1 and GE 1250/1-1 is gratefully acknowledged. Email address: [email protected]. 1
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