Complex evolutionary systems in behavioral finance
AbstractTraditional finance is built on the rationality paradigm. This chapter discusses simple models from an alternative approach in which financial markets are viewed as complex evolutionary systems. Agents are boundedly rational and base their investment decisions upon market forecasting heuristics. Prices and beliefs about future prices co-evolve over time with mutual feedback. Strategy choice is driven by evolutionary selection, so that agents tend to adopt strategies that were successful in the past. Calibration of "simple complexity models" with heterogeneous expectations to real financial market data and laboratory experiments with human subjects are also discussed.
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Bibliographic InfoPaper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 08-05.
Date of creation: 2008
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Postal: Dept. of Economics and Econometrics, Universiteit van Amsterdam, Roetersstraat 11, NL - 1018 WB Amsterdam, The Netherlands
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Other versions of this item:
- Cars Hommes & Florian Wagener, 2008. "Complex Evolutionary Systems in Behavioral Finance," Tinbergen Institute Discussion Papers 08-054/1, Tinbergen Institute.
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-06-21 (All new papers)
- NEP-CBA-2008-06-21 (Central Banking)
- NEP-CBE-2008-06-21 (Cognitive & Behavioural Economics)
- NEP-EVO-2008-06-21 (Evolutionary Economics)
- NEP-EXP-2008-06-21 (Experimental Economics)
- NEP-PKE-2008-06-21 (Post Keynesian Economics)
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