Investor beliefs and market equilibrium

The beliefs of economic actors play an important role in determining equilibrium outcomes. In this dissertation we investigate the implications of assuming that economic agents do not share the same beliefs about how the economy works. Models in finance frequently assume that economic agents have heterogeneous parameter estimates, but most models implicitly or explicitly assume that agents make decisions using a common model of the economy. In this dissertation we develop a modeling approach based on the assumption that economic agents do not share the same model. Our modeling approach is applied in two different contexts. In chapter two, we investigate the implications for capital structure theory of assuming that investors have different beliefs about the relationship between capital structure and firm value. In chapter three, we develop a beliefs-related explanation for the coexistence of two organizational forms, stock and mutual, in the life insurance industry