Jan

8

Of possible interest:

1) Here is a paper that tries to do a correlation:

One explanation for the documented patterns is that tower building is indicative of overoptimism. Widespread over-optimism could lead not only to tower-building but also to overvalued stock markets. The rational asset pricing explanation is that in periods of low risk aversion, financing of large-scale projects such as record-breaking towers is easier, and expected returns are lower. It is generally difficult to disentangle rational and irrational explanations for patterns in long-run returns. In the paper, I provide indirect evidence which favors the overvaluation view. Given its weakness, it should not be over-interpreted. In any case, the results suggest that a few episodes can have a significant impact on the long-run returns earned by investors. They also show that non-financial information like tower-building may help investors to identify periods of low future expected returns.

2) Casti uses it in the first chapter of his book. It looks like he associates the building start with the top.

Rocky Humbert writes:

This paper has a useful lesson for Donald Trump:

Instead of building a 4 million sq. foot skyscraper, he should build
TWENTY 200,000 sq. ft. low-rise buildings. Evidently, the authors
believe this will signal a robust, continuing economic expansion, and ensure a rising stock market!!!

Cognitive Bias, anyone?


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