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Market selection with learning and catching up with the Joneses

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  • Roman Muraviev
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    Abstract

    We study the market selection hypothesis 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 and 'catching up with Joneses' preferences. We develop new techniques for studying the 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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    File URL: http://arxiv.org/pdf/1106.3025
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1106.3025.

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    Date of creation: Jun 2011
    Date of revision: Jan 2012
    Handle: RePEc:arx:papers:1106.3025

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    Web page: http://arxiv.org/

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