We study the co-evolution of asset prices and agents' wealth in a financial market populated by an arbitrary number of heterogeneous, boundedly rational investors. We model assets' demand to be proportional to agents' wealth, so that wealth dynamics can be used as a selection device. For a general class of investment behaviors, we are able to characterize the long run market outcome, i.e.~the steady-state equilibrium values of asset return, and agents' survival. Our investigation illustrates that market forces pose certain limits on the outcome of agents' interactions even within the ``wilderness of bounded rationality''. As an application we show that our analysis provides a rigorous explanation for the results of the simulation model introduced in Levy, Levy, and Solomon (1994).
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Paper provided by Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy in its series LEM Papers Series with number
2007/27.
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