Learning with rare disasters
稀有灾难下的学习
Financial crises appear to have long‐lasting effects, even after the crisis itself has passed. This paper offers a simple explanation based on Bayesian learning from rare events. Agents face a latent and time‐varying probability of economic disaster. When a disaster occurs, learning results in greater effects on asset prices because agents update their probability of future disasters. Moreover, agents' belief that the disaster risk is high can rationally persist for years,…