I recently completed a very short research note entitled: “A Note On Confidence Momentum And Term Structure of Confidence with Applications to Financial Markets” which shows how subjects transform loss/gain domains into hope/fear. I thank Prof. Peter Wakker, and Prof. Jan Kmenta for their comments and encouragement in that inquiry. Those transformation phenomenon subsequently generate a “term structure of confidence” which interact to explain several stylized facts about financial markets. For instance, it helps explain the “irrational exuberance” phenomenon that seems to precede bubbles.

As usual, and feedback is very appreciated.

http://ssrn.com/abstract=2003319