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Market selection in large economies: a matter of luck

Author

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  • Massari, Filippo

    (University of Bologna)

Abstract

In a general equilibrium model with a continuum of traders and bounded aggregate endowment, I investigate the Market Selection Hypothesis that markets favor traders with accurate beliefs. Contrary to known results for economies with (only) finitely many traders, I find that risk attitudes affect traders' survival and that markets can favor "lucky" traders with incorrect beliefs over "skilled" traders with accurate beliefs. My model allows for a clear distinction between luck and skills and it shows that market selection forces induce efficient prices even when accurate traders do not survive in the long run.

Suggested Citation

  • Massari, Filippo, 2019. "Market selection in large economies: a matter of luck," Theoretical Economics, Econometric Society, vol. 14(2), May.
    • Handle: RePEc:the:publsh:2456
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    References listed on IDEAS

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    Cited by:

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    3. Dindo, Pietro, 2019. "Survival in speculative markets," Journal of Economic Theory, Elsevier, vol. 181(C), pages 1-43.
    4. Daniele Giachini, 2018. "Rationality and Asset Prices under Belief Heterogeneity," LEM Papers Series 2018/07, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    5. Han, Kookyoung, 2021. "Self-enforcement, heterogeneous agents, and long-run survival," Economics Letters, Elsevier, vol. 204(C).
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    7. Jonathan Newton, 2018. "Evolutionary Game Theory: A Renaissance," Games, MDPI, vol. 9(2), pages 1-67, May.
    8. Daniele Giachini, 2021. "Rationality and asset prices under belief heterogeneity," Journal of Evolutionary Economics, Springer, vol. 31(1), pages 207-233, January.

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    More about this item

    Keywords

    Market selection hypothesis; asset pricing; general equilibrium;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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