Markus Brunnermeier studies mispricings. His research focuses on financial crises, bubbles and significant mispricings due to institutional frictions, strategic considerations and behavioral trading. It explains why liquidity dries up when it is needed the most, and it has important implications for risk management and financial regulation. He questions the market assumption of rational expectations, arguing instead for a framework of optimal expectations. In a key paper, he posits that agents’ optimism about risky events may...