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Research Seminars & Workshops @ IRES

Professor Kiyohiko G. Nishimura
University of Tokyo

A Simple Characterization of Pessimism and Optimism: ε-Contamination Versus ε-Exuberance


15 December 2015 (Tuesday)


3.00pm - 4.30pm


RMI Executive Seminar Room, 21 Heng Mui Keng Terrace, I3 Building, Level 4


On Wall Street, there are bulls and bears among professional investors. On Main Street, ordinary people are sometimes overly optimistic about their future and at other times excessively pessimistic. Bulls and bears on Wall Street often have starkly different views about the markets even though available information is not so different among them. People on Main Street often switch from optimism to pessimism and vice versa quite easily even though there may not be noticeable change in their conditions. The purpose of this chapter is to present a simple characterization of optimism and pessimism of this kind. We show that seemingly irrational, overly optimistic or excessively pessimistic behavior described in the pre-vious paragraph can be in fact \rational" in the sense that it is consistent with axioms that are \reasonable," under fundamental uncertainty (that is, Knightian uncertainty) about the future. The organization of this chapter is as follows. The remainder of this section explains main results and their implications in a non-technical man-ner. Section 2 presents mathematical preliminaries. Section 3 deals with pessimism and presents axioms and main results. The proof is contained in Section 4. Section 5 extends our analysis to the case of optimism, and presents axioms, main results and proofs.

About the Speaker

Kiyohiko G. Nishimura is Professor of Economics of the Graduate School of Economics at the University of Tokyo. Before returning to academia, he was Deputy Governor for five years until March 19, 2013, one of the most turbulent periods in the history of the world economy and central banking. He has been particularly influential in the debates over macro-prudential policies, especially in pointing out the critical importance of demographic factors on property bubbles and financial crisis. His work and speeches on demography and economic policy have been cited widely and policy makers around the world have increasingly been recognizing the urgency of the problem.

He received his B.A. (1975) and M.A. (1977) from the University of Tokyo, and Ph. D. (1982) from Yale University. He was an Arthur M. Okun Research Fellow (1981-1982) at the Brookings Institution in Washington, D.C., before joining the Faculty of Economics at the University of Tokyo in 1993 where he was Associate Professor (1983-1994) and Professor (1994-2005). He was jointly appointed as Executive Research Fellow of the Economic and Social Research Institute of the Cabinet Office of the Government of Japan between 2003 and 2005, before joining the Bank of Japan as its Member of the Policy Board (2005-2008), and then as Deputy Governor (2008-2013). After returning to academia, he was Dean of the Graduate School of Economics and Chairman of the Faculty of Economics at the University of Tokyo (2013-2015). Since February 2014, he is Chairman of the Statistics Commission of the Government of Japan, which oversees the official statistics in Japan.

His academic research focus spans widely from economic theory such as mathematical economics and the microeconomic foundation of macroeconomics, economic policy to management studies about areas including property markets and the e-business of automobile distribution. He received the Nikkei Prize in 1993 for his book, Imperfect Competition, Differential Information, and Microeconomic Foundations of Macroeconomics (Oxford University Press, 1992), the Japan Economist Prize in 1997 for his book, Macroeconomics of “Price Revolution” (Nihon Keizai Shinbun, 1996), the Japan Association of Real Estate Sciences Prize in 2005 for his book, Economic Analysis of Property Markets (Nihon Keizai Shinbun, 2002), and TELECOM Social Science Award in 2006 for his book, Advancement of Information and Communication Technology and Its Impacts on the Japanese Economy (Yuhikaku Publishing, 2004). He was also the winner of the Japanese-Economic-Association-Nakahara Prize in 1998 for his outstanding international contribution to mathematical economics and economic theory. He was awarded Emperor’s Medal of Honor with Purple Ribbon in 2015, for his outstanding contribution to theoretical economics. He is now a senior advisor of the Asian Economic Panel and a member of the editorial board of several international academic journals in economics and management sciences. He also held business positions before joining the Bank of Japan: he sat on the Advisory Board of the Fujitsu Research Institute (Japan) and he was an academic advisor of Recruit Ltd. (Japan) and Investment Property Databank (U.K.). Since July 2014, he is an independent director of Cookpad Inc., a global IT company managing the world’s largest recipe-exchange site on the smartphone platform. Since December 2014, he is a member of the MNI Connect Advisory Board of Market News International (subsidiary of Deutsche Börse), a leading provider of news and intelligence for the global foreign exchange and fixed income markets. He is also an advisor of Zymax Real Estate Research Institute (since October 2015) and Nowcast Inc. (since February 2014).

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