Rational Belief Bubbles

Hyun-U Sohn & Didier Sornette
© Copyright © 2020 Sohn and Sornette. We propose an extension of the class of rational expectations bubbles (REBs) to the more general rational beliefs setting of [1, 2]. In a potentially non-stationary but stationarizable environment, among a heterogenous population of agents, it is possible to hold more than one “rational” expectation. When rational but diverse beliefs converge (“correlated beliefs”), they do not cancel each other out in aggregate anymore. This can make them an...
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