Market selection with learning and catching up with the Joneses
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Date
2011-06-15
Publication Type
Working Paper
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yes
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Abstract
We study natural selection in complete financial markets, populated by heterogeneous agents. We allow for a rich structure of heterogeneity: Individuals may differ in their beliefs concerning the economy, information and learning mechanism, risk aversion, impatience (time preference rate) and degree of habits. We develop new techniques for studying long run behavior of such economies, based on the Strassen's functional law of iterated logarithm. In particular, we explicitly determine an agent's survival index and show how the latter depends on the agent's characteristics. We use these results to study the long run behavior of the equilibrium interest rate and the market price of risk.
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published
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1106.3025
Publisher
Cornell University
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Subject
Natural selection; Heterogeneous equilibrium; Diverse beliefs; Learning; Survival index; Catching up with the Joneses
Organisational unit
03658 - Schweizer, Martin / Schweizer, Martin
02204 - RiskLab / RiskLab
02824 - Pool Gruppe 3 (D-MATH)
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