 In this research, we study how cognitive misperceptions about future economic developments can affect stability in financial markets. Also, what we do is to investigate the implications of those misperceptions for the appropriate conduct of macro-provincial regulation. To address these considerations, essentially we need a proper definition of cognitive misperceptions, and to add that definition, we look at existing literature. In particular, we use the concept of diagnostic expectations. These are deviations from rational expectations. These deviations tend to overreact to recent information relative to a rational benchmark, in the sense that they assign very high probability mass to events in the future that are reminiscent of events that happened in the recent past. These expectations are very attractive from a scientific point of view, because the forecast errors on asset returns associated with expectations are very consistent with those documents empirically. So what we do in this research is to embed these diagnostic expectations into another standard macro-economic model with a banking sector, and now with this model in hand, we conduct a positive analysis to address the first consideration, and then we conduct a normative analysis to address the second consideration. Out of these analyses, we obtain the following results. The key takeaway from the positive investigation is that diagnostic expectations increase instability in financial markets relative to a rational benchmark. Essentially, this happens because those expectations strengthen some positive interactions between bank net worth and asset prices that arise because banks are financially constrained and hence need some equity to finance their asset positions. So now we look at normative results. And here we obtain that as a consequence of the higher instability in financial markets because of the diagnostic expectations, now there is more need for macro-provincial interventions, put differently for capital requirements on banks that are based on policy. What we obtain is that this macro-provincial intervention is tighter even if the regulator is subject to the same misperceptions as the private agents. Then we look at these differences in misperceptions among potential different regulators, and we find that regulators with different beliefs or with different expectations have different preferences concerning the optimal regulation. But more importantly, we find that this agreement is higher during financial booms when essentially risk-taking in financial markets is more aggressive and consequently these positive interactions between bank net worth and asset prices are stronger. So overall, what we do here is to study implications of cognitive misperceptions on the stability of financial markets. We find that those misperceptions increase the instability in those markets. Then we look at implications for macro-provincial regulation and essentially obtain that because of the higher instability, there is a higher need for tightening the behavior of banks for instance by putting tighter capital requirements on those agents. So that's the takeaway from our paper and thank you very much.