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Housing Bubble Week: A Philosophy Of Bubbles - Timo Henckel

The Joe Walker Podcast

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Heterogeneity and Bubbles in the Markets

The idea of a trade in a market presupposes heterogeneous informational expectations. Most economic models, when they assume rational expectations, if at all, allow for only very little heterogeneity in expectations because they don't really know how to handle it. That generates an upward bias in asset prices more generally. This leads to a general preponderance of buyers out there who probably overvalue assets and a dearth of buyers who undervalue them.

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