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Heterogeneous Expectations, Dynamics, and Stability of Markets

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  • Lasselle, Laurence

    (University of St Andrews)

  • Serge Svizzero
  • Clem Tisdell

Abstract

This paper examines the role of heterogeneous beliefs in a cobweb model. We proceed in two stages. First, two groups of agents are distinguished. They are either fundamentalists, or chartists. The latter specify the expected price from an adaptive process, the former have a "rational behaviour". Second, agents may choose between rational expectations and an adaptive process. We demonstrate twofold. The market behaviour of fundamentalists compared to chartists promotes market stability. Market stability may emerge depending on the specification of the expectations and the intensity of switching between the two behaviours.

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Bibliographic Info

Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 130.

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Date of creation: 04 Jun 2003
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Handle: RePEc:ecj:ac2003:130

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Postal: Office of the Secretary-General, School of Economics and Finance, University of St. Andrews, St. Andrews, Fife, KY16 9AL, UK
Phone: +44 1334 462479
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Web page: http://www.res.org.uk/society/annualconf.asp
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Keywords: cobweb model; switching behaviour; Flip bifurcation; Neimark-Sacker bifurcation; resonance;

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Cited by:
  1. Brandouy, O., 2005. "Stock markets as Minority Games: cognitive heterogeneity and equilibrium emergence," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 349(1), pages 302-328.

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