Sentiment-driven limit cycles and chaos

A recent strand of macroeconomic literature has placed sentiment fluctuations at the forefront of the academic debate about the foundations of business cycles. Waves of optimism and pessimism influence the decisions of investors and consumers, and they might therefore be interpreted as a driving for...

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Bibliographic Details
Published in:Journal of evolutionary economics 2017-09, Vol.27 (4), p.729-760
Main Authors: Gomes, Orlando, Sprott, J. C.
Format: Article
Language:English
Subjects:
Business cycles
Chaos theory
Consumers
Economic Growth
Economic models
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Endogenous
Entrepreneurship
Institutional/Evolutionary Economics
Macroeconomics
Microeconomics
Optimism
Pessimism
R & D/Technology Policy
Regular Article
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Summary:A recent strand of macroeconomic literature has placed sentiment fluctuations at the forefront of the academic debate about the foundations of business cycles. Waves of optimism and pessimism influence the decisions of investors and consumers, and they might therefore be interpreted as a driving force for the performance of the economy in the short term. In this context, two questions regarding the formation and evolution of psychological moods in an economic setting gain relevance: First, how can we model the process of transmission of sentiments across economic agents? Second, is this process capable of generating endogenous and persistent fluctuations? This paper answers these two questions by proposing a simple and intuitive continuous-time dynamic sentiment spreading model based on the rumor propagation literature. As agents contact with one another, endogenous fluctuations are likely to emerge, with trajectories of sentiment shares potentially exhibiting periodic cycles and chaotic behavior.
ISSN:0936-9937
1432-1386
DOI:10.1007/s00191-017-0497-5