Heterogeneous Beliefs, Risk and Learning in a Simple Asset-Pricing Model
AbstractFollowing the concept of "adaptively rational equilibrium", Brock and Hommes establish a simple present discounted value asset-pricing model with heterogeneous beliefs. Agents adapt their beliefs over time by choosing from different predictors or expectations functions, based upon their past performance as measured by realised profits. As the intensity of choice to switch predictors increases, they have observed several bifurcation routes to complicated asset-price fluctuations. In this paper we extend this model to incorporate different risk attitudes of different types of investors and allow for more sophisticated learning schemes. Using both bifurcation theory and numerical analysis, we investigate the effects on the dynamics of the model of different risk aversion coefficients and different learning schemes. We also systematically investigate the effect of external noise on the system. We find that the resulting dynamical behaviour is considerably enriched and has some significant differences compared to the original Brock-Hommes analysis.
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Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 1999 with number 223.
Date of creation: 01 Mar 1999
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Other versions of this item:
- Chiarella, Carl & He, Xue-Zhong, 2002. "Heterogeneous Beliefs, Risk and Learning in a Simple Asset Pricing Model," Computational Economics, Society for Computational Economics, vol. 19(1), pages 95-132, February.
- Carl Chiarella & Xue-Zhong He, 1999. "Heterogeneous Beliefs, Risks and Learning in a Simple Asset Pricing Model," Research Paper Series 18, Quantitative Finance Research Centre, University of Technology, Sydney.
- NEP-ALL-1999-07-12 (All new papers)
- NEP-CMP-1999-08-22 (Computational Economics)
- NEP-EDU-1999-07-12 (Education)
- NEP-FIN-1999-07-12 (Finance)
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