The Review of Austrian Economics

, Volume 14, Issue 4, pp 319–330 | Cite as

Expectations in Austrian Business Cycle Theory: An Application of the Prisoner's Dilemma

  • Anthony M. Carilli
  • Gregory M. Dempster


The standard account of Austrian Business Cycle theory posits that central bank manipulations of interest rates fool bankers and investors into believing that there has been an increase in the real supply of loanable funds available for capital investment. However, reliance on “foolishness” ignores the entrepreneurial emphasis within the Austrian tradition and fails to produce the strongest possible case for Austrian Business Cycle theory. We use the prisoner's dilemma framework to model the profit maximizing behavior of bankers and the investors under uncertainty when the market rate of interest is below the underlying rate of time preference.


Interest Rate Business Cycle Public Finance Central Bank Capital Investment 
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Copyright information

© Kluwer Academic Publishers 2001

Authors and Affiliations

  • Anthony M. Carilli
  • Gregory M. Dempster

There are no affiliations available

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