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Irrational exuberance, entrepreneurial finance and public policy

By Marta Coelho, David de Meza and Diane J. Reyniers


Unrealistic optimism is a well documented phenomenon. This paper argues that it is important in many economic contexts. Focusing on start-up finance for businesses, optimism may be responsible for or consistent with features such as credit rationing or redlining that are normally taken as symptoms of under-provision of finance requiring intervention to expand lending. Optimism leads to the opposite conclusion, at least if it is legitimate to use fiscal policy to counteract systematic error. The paper reports on an experiment in which, due to optimism, the lower the prizes to entrepreneurial activity the higher the subject's expected income

Topics: HJ Public Finance
Publisher: Springer Netherlands
Year: 2004
DOI identifier: 10.1023/B:ITAX.0000033985.96539.65
OAI identifier:
Provided by: LSE Research Online

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