Before revision: How do financial crises and stock-market fluctuations affect investor behavior and the dynamicsof financial markets in the long run ? Recent evidence suggests that individuals overweight personal experiences of macroeconomic shocks when forming beliefs and making investmentdecisions. We propose a theoretical foundation for such experience-based learning and derive its dynamic implications in a simple OLG model.
After revision: How do financial crises and stock-market fluctuations affect investor behavior and the dynamicsof financial markets in the long run ? Recent evidence on experience effects suggests a long-lasting influence of personally experienced outcomes on investor beliefs and investment, but also significant differences across older and younger generations. We formalize experience-based learning and derive its dynamic implications in a simple OLG model.