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Publications
Publications
  • 2018
  • Book

A Crisis of Beliefs: Investor Psychology and Financial Fragility

By: Nicola Gennaioli and Andrei Shleifer
  • Format:Print
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Abstract

The collapse of Lehman Brothers in September 2008 caught markets and regulators by surprise. Although the government rushed to rescue other financial institutions from a similar fate after Lehman, it could not prevent the deepest recession in postwar history. A Crisis of Beliefs makes us rethink the financial crisis and the nature of economic risk. In this authoritative and comprehensive book, two of today’s most insightful economists reveal how our beliefs shape financial markets, lead to expansions of credit and leverage, and expose the economy to major risks. Nicola Gennaioli and Andrei Shleifer carefully walk readers through the unraveling of Lehman Brothers and the ensuing meltdown of the U.S. financial system and then present new evidence to illustrate the destabilizing role played by the beliefs of home buyers, investors, and regulators. Using the latest research in psychology and behavioral economics, they present a new theory of belief formation that explains why the financial crisis came as such a shock to so many people—and how financial and economic instability persist. A must-read for anyone seeking insights into financial markets, A Crisis of Beliefs shows how even the smartest market participants and regulators did not fully appreciate the extent of economic risk and offers a new framework for understanding today’s unpredictable financial waters.

Keywords

Financial Fragility; Economic Risk; Investor Behavior; Behavioral Economics; Financial Crisis; Risk and Uncertainty; Financial Markets; Investment; Values and Beliefs; United States

Citation

Gennaioli, Nicola, and Andrei Shleifer. A Crisis of Beliefs: Investor Psychology and Financial Fragility. Princeton University Press, 2018.
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About The Author

Andrei Shleifer

Negotiation, Organizations & Markets
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  • The Invention of Corporate Governance By: Yueran Ma and Andrei Shleifer
  • A Cognitive Theory of Reasoning and Choice By: Pedro Bordalo, Nicola Gennaioli, Giacomo Lanzani and Andrei Shleifer
  • Finance Without Exotic Risk By: Pedro Bordalo, Nicola Gennaioli, Rafael La Porta and Andrei Shleifer
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