This paper reviews the quickly growing literature that builds on heterogeneous beliefs, a widely observed attribute of individuals, to explain bubbles, crises, and endogenous risk in financial markets.
This chapter is prepared for Handbook for Systemic Risk edited by Jean-Pierre Fouque and Joe Langsam. I thank Hersh Shefrin for helpful editorial suggestions. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.