Discussion papers

CPM-00-62 - 2 May 2000

Recognition of investment opportunities and generation of investment cycles

Guido Fioretti

A Paper at: The “Starting from Society” symposium at ASIB’2000 convention, Birmingham University, 16th-19th April 2000.

Also published as: Guido Fioretti (2000), “Recognition of investment opportunities and generation of investment cycles”, in the Proceedings of the AISB’00 Symposium on Starting from Society – the Application of Social Analogies to Computational Systems, Birmingham, UK: AISB, 37-44. (ISBN 1 902956 13 8)

Abstract

Innovations cause entrepreneurs’ mental models not to hold, generating optimism when innovations open up new fields of activity and pessimism when investments in fields that used to be safe no longer yield the usual returns. The state of optimism or pessimism in the minds of entrepreneurs eventually propagates to the whole economy, triggering up- and downswings of aggregate investments. This paper makes use of an original methodology to compute entrepreneurs’ state of confidence, depending on the extent empirical experiences validate their mental models. It is primarily concerned with decision- making in situations where unexpected events (e.g. new technologies) appear.

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