3. https://www.jstor.org/stable/1808111 Bordalo, P, Gennaioli, N and Shleifer, A (2018), ‘Diagnostic Expectations and Credit Cycles’, Journal of Finance, Vol. 73, No. 1. https://doi.org/10.1111/jofi.12586 Bridges, J, Jackson, C and McGregor, D (2017), ‘Down in the slumps: the role of credit in five decades of recessions’, Bank of England Staff Working Paper No. 659. https://www.bankofengland.co.uk/workingpaper/2017/down-in-the-slumps-the-role-of-credit-in-five-decades-of-recessions Broadbent, B (2019), ‘Debt dynamics’, speech given at the London Business School. https://www.bankofengland.co.uk/speech/2019/ben-broadbent-speech-at-london-business-school Bunn, P and Rostom, M (2015), ‘Household debt and spending in the United Kingdom’, Bank of England Staff Working Paper No. 554. Carney, M (2019), ‘The global outlook’, speech given at Frobisher Hall, London. https://www.bankofengland.co.uk/speech/2019/mark-carney-speech Cipolla, C (1982), ‘The monetary policy of fourteenth-century Florence’, University of California Press  14  All speeches are available online at www.bankofengland.co.uk/speeches  14  Clayton, N and Wilkins, C (2017), ‘Memory, mental time travel and The Moustachio Quartet’, Interface Focus 7. https://doi.org/10.1098/rsfs.2016.0112 Cunliffe, J (2016), ‘Credit: can trees grow to the sky?’, speech given at the British Property Federation annual investment conference, London. https://www.bankofengland.co.uk/speech/2016/credit-can-treesgrow-to-the-sky Diamond, D and Dybvig, P (1983), ‘Bank runs, deposit insurance, and liquidity’, Journal of Political Economy, Vol. 93, No. 3. https://doi.org/10.1086/261155 Frank, T (1935), ‘The financial crisis of 33 AD’, American Journal of Philology, Vol. 56, No.

Williams (1987) reports various experiments testing how market participants form price forecasts, rejecting both rational expectations and extrapolative expectations models. 16 See for example Lovell (1986) 17 University of Chicago (1995) 18 Sovereign defaults are a fascinating example throughout history of the complexity of expectation formation – on the one hand, there are many examples of investors having long memories. Louis XI faced a very high cost of borrowing because of repeated defaults and similar pressure encouraged William III to the creation of the Bank of England. On the other hand, there are many instances of investors lending repeatedly to sovereigns that have defaulted repeatedly. 14  6  All speeches are available online at www.bankofengland.co.uk/speeches  6  Pedro Bordalo, Nicola Gennaioli and Andrei Shleifer have recently posited a model of expectations that acknowledges our tendency to extrapolate from the past, but also allows for the use of forward-looking information.19 It endeavours to integrate insights from behavioural economics into a rigorous economic model. They have embedded the work of behavioural psychologists that shows that while we do use news to form expectations of the future, we have a tendency to over-weight certain types of news. And that the way we remember can lead to certain risks being neglected or undervalued when we project the future. They use this model to explain the development of expectations in the run-up to the great financial crisis 10 years ago, expectations which they demonstrate were clearly not rational in the light of available information.