Sunspots forever

David Cass, formerly an economist at the University of Pennsylvania, has passed away.  His contributions were notable:

He made singular
contributions to economic theory, including the introduction of the "Cass-Koopmans"
growth model, the discovery of the "Cass" criterion for Pareto efficiency in overlapping
generations models. With Karl Shell, he discovered the importance of extrinsic uncertainty (sunspots)
in economic dynamics.  His work with many
coauthors on incomplete financial markets was extremely influential.

The main idea of sunspots models is that when multiple equilibria are present, expectations can determine which equilibrium comes to pass.  This is a twist on rational expectations; under RE people expect the true model but Cass showed that what is the true model will depend on what people expect.  If I recall correctly, Cass also helped figure out when problems with infinities will render growth models incoherent or invalid.  Cass’s version of "high theory" is exactly what is out of fashion today but in the 1980s it was the rage.  I believe some of his work will return in importance.  Here is Cass on

Thanks to Chester Norman for the pointer.


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