P olicy makers in housing sector seeks to use instruments by which they can control volatility of housing price and prevent high disturbances of the bubble and price shocks, or at least, reduce them. In the portfolio and speculation theories, it is emphasized that speculative demand for housing is the main cause of shocks and price volatilities in the sector. The theory of housing price bu...

We introduce a simple generalization of rational bubble models which removes the fundamental problem discovered by [20] that the distribution of returns is a power law with exponent less than 1, in contradiction with empirical data. The idea is that the price fluctuations associated with bubbles must on average grow with the mean market return r. When r is larger than the discount rate rδ , the...

Asset-price bubbles challenge the explanatory and predictive power of standard economic theory, suggesting that neuroeconomic measures should be explored as potential tools for improving the predictive power of standard theory. We begin this exploration by reviewing results from functional magnetic resonance imaging (fMRI) studies of lab asset-price bubbles and herding behavior (i.e., following...

Formations of acoustic cavitation bubbles in various resonator set−ups are recorded by high− speed stereoscopic means. The bubble distributions and motions are reconstructed in three dimensions. Such data is a key for better understanding of the mechanisms taking place in applications of intense ultrasound in liquids. Furthermore, the data serves for verification and improvement of particle mod...

Throughout human history, economic bubbles have formed and burst. As a bubble grows, microeconomic behavior ceases to be constrained by realistic predictions. This contradicts the basic assumption of economics that agents have rational expectations. To examine the neural basis of behavior during bubbles, we performed functional magnetic resonance imaging while participants traded shares in a vi...

Filamentary formations of acoustic cavitation bubbles in an ultrasonic resonator are recorded by high-speed stereoscopic means. The bubble locations and motions are reconstructed in three dimensions, and a velocity distribution of bubbles is obtained. Experimental bubble trajectories are compared to a one-to-one simulation by a particle modeling approach which shows reasonable agreement. Such i...

We study the formation of derivative prices in equilibrium between risk-neutral agents with heterogeneous beliefs about the dynamics of the underlying. Under the condition that short-selling is limited, we prove the existence of a unique equilibrium price and show that it incorporates the speculative value of possibly reselling the derivative. This value typically leads to a bubble; that is, th...

We present a simple macroeconomic model that includes a role for an asset-price bubble. We then derive optimal monetary policy settings for two policymakers: a skeptic, for whom the best forecast of future asset prices is the current price; and an activist, whose policy recommendations take into account the complete stochastic implications of the bubble. We show that the activist’s recommendati...