Dynamic Expectation Theory: Insights for Market Participants

摘要

This paper develops a new methodology in order to study the role of dynamic expectations.Neither reference-point theories nor feedback models are sufficient to describe human expectationsin a dynamic market environment. We use an interdisciplinary approach and demonstrate thatexpectations of non-learning agents are time-invariant and isotropic. On the contrary, learningenhances expectations. We uncover the “yardstick of expectations” in order to assess the impact ofmarket developments on expectations. For the first time in the literature, we reveal new insightsabout the motion of dynamic expectations. Finally, the model is suitable for an AI approach and hasmajor implications on the behaviour of market participants.