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Heterogeneity, Selection, and Wealth Dynamics

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Author Info

  • Lawrence Blume
  • David Easley

    ()
    (Department of Economics, Cornell University, Ithaca, New York 14853
    IHS Vienna
    The Santa Fe Institute)

Abstract

The market selection hypothesis states that, among expected utility maximizers, competitive markets select for agents with correct beliefs. In some economies this hypothesis holds, whereas in others it fails. It holds in complete-markets economies with a common discount factor and bounded aggregate consumption. It can fail when markets are incomplete, when consumption grows too quickly, or when discount factors and beliefs are correlated. These insights have implications for the general equilibrium modeling of asset prices and macroeconomic phenomena.

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File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev.economics.102308.124403
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Bibliographic Info

Article provided by Annual Reviews in its journal Annual Review of Economics.

Volume (Year): 2 (2010)
Issue (Month): 1 (09)
Pages: 425-450

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Handle: RePEc:anr:reveco:v:2:y:2010:p:425-450

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Related research

Keywords: market selection hypothesis; rational expectations; survival index; asset pricing;

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Cited by:
  1. Giulio Bottazzi & Pietro Dindo, 2011. "Selection in asset markets: the good, the bad, and the unknown," LEM Papers Series 2011/11, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  2. Giovanni Dosi, 2012. "Economic Coordination and Dynamics: Some Elements of an Alternative "Evolutionary" Paradigm," LEM Papers Series 2012/08, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

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