The jury of the 2015 Maurice Allais prize in economic science has nominated a seasoned investment professional, Eric Barthalon, for his book, Uncertainty, Expectations, and Financial Instability. Maurice Allais has constantly sought to bring economic theory as close as possible to empirical observations; fostering communication between practitioners and theorists has therefore been one of his long standing priorities. In this respect, the work submitted by Eric Barthalon to the Maurice Allais foundation is a model, while at the same time it is of rare scientific quality in such a context. In the first part of his book, Eric Barthalon expounds Allais's monetary theory with a command and puts it in a perspective, which no other book offers. As indicated by the subtitle, he advocates reinstating Allais's lost theory of psychological time in core economic theory. Emphasized is the fact that investors' expectations are not as rational as neoclassical economic theory claims them to be and that investors' memory is context-dependent, long in stable environment, shorter and shorter during bubbles, a proposition which is at the heart of Maurice Allais's monetary theory. In the second part of his book, Eric Barthalon investigates the issue of financial instability by means of Allais's theory of psychological time. His unearthing of a hitherto unseen empirical relationship between long-term nominal interest rates and the rate of nominal growth subjectively perceived by market participants adds a new chapter to Allais's monetary theory. In the last chapters, Eric Barthalon starts building original and promising bridges with the modeling of financial behavior. He also touches upon some important policy issues, like fractional reserve banking, which – as Allais and other economists before him – he holds for a key source of financial instability.

Eric Barthalon is the global head of capital markets and tactical asset allocation at Allianz Investment Management in Munich, Germany. Throughout more than three decades of exposure to capital markets in global financial institutions (at Paribas and Allianz), in which he has focused constantly on asset management, Barthalon has sought to blend operational and research responsibilities, action with theoretical reflection. He received a Masters in Management from ESCP–Europe.

List of Tables
List of Figures
Preface
Acknowledgments
Introduction
Glossary of Mathematical Symbols in Order of Appearance
Part 1. The Progressive Emergence of Expectations in Economic Theory
1. Expectations Before the Rational Expectations Revolution
2. Rational Expectations Are Endogenous to and Abide by ''the'' Model
Part 2. Allais's Theory of "Expectations" Under Uncertainty
3. Macrofoundations of Monetary Dynamics
4. Microfoundations of Monetary Dynamics: The HRL Formulation of the Demand for Money
5. The Fundamental Equation of Monetary Dynamics
6. Joint Testing of the HRL Formulation of the Demand for Money and of the Fundamental Equation of Monetary Dynamics
Part 3. Transposing the HRL Formulation to Financial Markets: Preliminary Steps
7. Allais's HRL Formulation: Illustration of Its Dynamic Properties by an Example of Hyperinflation (Zimbabwe 2000-2008)
8. The HRL Formulation and Nominal Interest Rates
Part 4. The HRL Formulation and Financial Instability
9. Perceived Returns and the Modeling of Financial Behavior
10. Downside Potential Under Risk: The Allais Paradox and Its Conflicting Interpretations
11. Downside Potential Under Uncertainty: The Perceived Risk of Loss
12. Conclusion
Appendix A: How to Compute Zn and zn
Appendix B: Nominal Interest Rates and the Perceived Rate of Nominal Growth
Appendix C: Proofs
Appendix D: Comparison Between the Kalman Filter and Allais's HRL Algorithm
Appendix E: A Note on the Theory of Intertemporal Choice
Appendix F: Allais's Cardinal Utility Function
Notes
Bibliography
Index