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Uncertainty, Expectations, and Financial InstabilityReviving Allais's Lost Theory of Psychological Time$

Eric Barthalon

Print publication date: 2014

Print ISBN-13: 9780231166287

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231166287.001.0001

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(p.xv) List of Figures

(p.xv) List of Figures

Source:
Uncertainty, Expectations, and Financial Instability
Publisher:
Columbia University Press

  1. 3.1 Stylized nonlinear model of monetary dynamics. 63

  2. 3.2 Endogenous fluctuations: example of a limit cycle. 64

  3. 3.3 Endogenous fluctuations: example of a stable equilibrium. 64

  4. 4.1 Exponential average—spot weightings. 69

  5. 4.2 Function Ψ(Z): Psychological transformation of calendar time and relative desired balances. 75

  6. 4.3 Function Ψ(Z), for α = b = 1, relative desired balances/psychological transformation of calendar time. 77

  7. 4.4 HRL formulation elasticities. 85

  8. 4.5 HRL formulation elasticities. 86

  9. 5.1 Elementary period of reference. 97

  10. 5.2 Stable equilibrium with pseudo-periodic convergence. 104

  11. 5.3 Unstable equilibrium with limit cycle. 104

  12. 5.4 Echo bubble. 110

  13. 5.5 Exponential path with near-zero money growth. 111

  14. 6.1 Interdependence of the HRL formulation of the demand for money and of the fundamental equation of monetary dynamics. 116

  15. 6.2 Japan 1955–2006, joint test of the HRL formulation and the FEMD. 124

  16. 6.3 Japan 1955–2006, joint test of the HRL formulation and the FEMD. 124

  17. (p.xvi) 7.1 Zimbabwe: asymptotic convergence of the perceived rate of inflation toward the instantaneous rate of inflation. 135

  18. 7.2 Zimbabwe: perceived rate of inflation and distribution of forecasting errors. 139

  19. 7.3 S&P 500 daily returns: distribution of forecasting errors. 141

  20. 7.4 Brazil: perceived rates of inflation and money depreciation. 147

  21. 7.5 Rate of memory decay, perceived growth rate (dynamic equilibrium rate) and elasticity as functions of z. 149

  22. 7.6 Time needed to converge toward the average annualized rate. 149

  23. 7.7 Two artificial time series differing only by their volatility. 150

  24. 7.8 Sensitivity of the perceived rate of growth to the volatility of inputs. 150

  25. 8.1 US AAA corporate bond yields and the HRL formulation. 160

  26. 8.2 Yield on British Consols and the HRL formulation. 169

  27. 9.1 S&P 500 and margin debt. 187

  28. 9.2 NASDAQ and margin debt. 187

  29. 9.3 Margin debt and perceived equity returns: a nonlinear relationship. 190

  30. 9.4 Bank debits in New York City and the present value of past equity returns. 191

  31. 9.5 Margin debt and the present value of equity returns. 192

  32. 9.6 Empirical demand curves for risky assets. 196

  33. 9.7 Perceived excess returns over the policy rate. 198

  34. 10.1 Bernoullian cardinal utility. 205

  35. 10.2 Allais’s 1943 conjecture on cardinal utility. 207

  36. 10.3 Cardinal utility functions defined up to a linear transformation and local linearity. 208

  37. 10.4 Distribution parameters of a constant-gain, variable-probability prospect. 214

  38. 10.5 Distribution parameters of a constant-loss, variable-probability prospect. 215

  39. (p.xvii) 10.6 Comparison of the moments of two risky prospects. 218

  40. 10.7 Representation of observed cardinal utility on a lin-log graph. 227

  41. 10.8 Empirical invariant cardinal utility: rescaled observations. 228

  42. 10.9 Allais’s invariant cardinal utility function for gains. 230

  43. 10.10 Allais’s invariant cardinal utility function. 231

  44. 10.11 Finetti’s answers to questions 71 to 78. 234

  45. 11.1 United States: corporate bonds yields ratio and the perceived risk of loss on equities. 246

  46. 11.2 S&P 500: implied volatility, estimate based on the S&P 500 perceived upside and downside volatilities. 247

  47. 11.3 Cumulative drawdowns on the Tokyo Stock Exchange Price Index (TOPIX) and the perceived risk of loss in the Japanese equity market. 248

  48. 11.4 Perceived return and risk of loss in the Japanese bubble. 249

  49. 11.5 Perceived risk of loss on US equities, Cowles commission stock index chained with S&P 500 after 1928. 249

  50. 11.6 S&P 500: cyclically adjusted PE and perceived risk of loss. 250

  51. 11.7 S&P 500: cumulative drawdowns and perceived risk of loss. 251

  52. 11.8 S&P 500 and NASDAQ perceived returns. 252

  53. 11.9 Perceived risk of cash flow (EBITDA) shortfall. 252

  54. 11.10 The mother of all expectations. 262

  55. E.1 Discount factor under different discounting models. 332

  56. E.2 A1-year discount rate. 335

  57. E.3 The hyperbolic discounting hypothesis. 336

  58. E.4 Rebased cardinal utility function. 337

  59. E.5 Marginal utility. 338 (p.xviii)