Must-Read: I want to plump for “self-fulfilling prophecies” or “multiple near-rational equilibria” myself:
Roger Farmer: Please: Lets Agree to Speak the Same Language: “Animal spirits, confidence, sunspots, self-fulfilling prophecies and sentiments…
…have all been used to mean shifts in markets caused by factors that are non-fundamental. Now Olivier adds herding as one more term…. The idea that non fundamental factors can have real effects was developed at the University of Pennsylvania in the 1980s at about the same time that the Real Business Cycle model took off…. The RBC agenda pulled ahead and stayed ahead for thirty years. That is now changing. Why this divergence?…
There were three major reasons why the RBC program pulled ahead. 1) there was no single strong individual to promote the sunspot agenda and the three initial leaders, Costas Azariadis, Dave Cass and Karl Shell could not even agree among themselves…. 2) The literature on sunspots was technically demanding…. 3) Cass, Shell and Azariadis were not interested in empiricism and they did not make an effort to promote their agenda at central banks or at applied groups such as the National Bureau of Economic Research…. If you are a graduate student or a researcher who is working, or planning to work, in this area, I have a plea. Can we at least agree to add no more words to refer to the same idea? Please: Lets agree to speak the same language and, in so doing, give credit to those who laid the foundations for this agenda.
