The dispersion of expectations in a speculative market

Steindl, Josef

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Document type:: Works

Collection:: Josef Steindl Collection

Title:: The dispersion of expectations in a speculative market

Author:: Steindl, Josef

Scope:: Typoskript mit einigen Tippfehlern, 3 Blätter

Year of publication:: 1990

Language:: English

Topic:: Firm and market structure

JEL Classification:: G17 [Financial Forecasting and Simulation]

Shelfmark:: S/M.77.2

DOI:: https://doi.org/10.48671/nls.js.AC14446338

exclusive concentration on the individual’s mind which tends to leave no room for any conclusions. The above analysis can also be seen as an alternative to traditional concepts of supply and demand. Instead of two different functions relating the same two variables we have only one function. The supply (offer) and the demand are exogenous quantities. We have assumed implicitly that the amount of bonds is given and invariable. The new entrant into the market who brings in a new demand or a new supply must therefore indirectly find the necessary adjustment in the quantity of the no-bonds, that is money, which is assumed to adjust automatically in Kaldorian fashion. Let us discuss now an assumption which is crucial for the preceding considerations, namely the independence of the various participants’ expectations. When this assumption does not hold any more even approximately there will be no steady state. The essence of the situation is the assymetry which makes of one person the imitator and of the other the imitated or opinion leader. There will be clusters of expectations round an opinion leader. These clusters usually will be unstable as opinion shifts to new leaders. Thise is an uncertainty of the second kind, the variety of possible clusters of opinibn and the frequency of shifts between them. If the imitation concentratse and leads to agglomerations in one or another direction, the market will become bearish or bullish as the case may be. There may also be a two humped frequency distribution and the prevailing opinion may switch in the course of time between these extremes (one thinks of the behaviour of the dollar). The most extreme loss of independence occurs in a crash. Here one opinion has come to dominate and the other condition for steady state, the existence of a belief in certain limits or standards has also disappeared. This brief note has made use, without quotation, of elements which are well known from the writings of creative economists like Keynes or Schumpeter. My point is that these elements would fit in very well with the type of stochastic approach which aims at objective and social concepts instead of a psychological and subjective treatment of expectation and uncertainty. I think that ultimately an analysis along these lines will lead to a new understanding not only of speculative markets but perhaps of the market as such which has been identified all too long with a cliche.

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