INET project HExFiCs
Heterogeneous Expectations and Financial Crises
This research project funded by the Institute of New Economic Thinking (INET) aims to develop a behavioral paradigm of heterogeneous expectations that can help explain the sources of financial and macroeconomic instability and find possible policy remedies.
The main goal of the project is to build a financial‐macroeconomic model of heterogeneous expectations and to test it using extensive laboratory experiments with human subjects and then fit the model to empirical data. In particular, the project aims to understand whether introducing more financial derivatives can stabilize or destabilize markets, and how the interaction between heterogeneous expectations by different groups of agents (real-estate developers, home buyers, and speculative investors) affects price dynamics in the housing market. The research results of this project may give insights for early detection of crises and designing policies that prevent macroeconomic instability and avoid crises.