Volatility, Heterogeneous Agents and Chaos
AbstractAgent heterogeneity has been used in recent economic literature to justify nonlinear dynamics for the time paths of aggregate economic variables. In this paper, the mechanism through which heterogeneous agents leads to chaotic motion is explained. Adding to a system with initial behavior heterogeneity an adaptive learning rule based on discrete choice theory, one is able to encounter a reasonable explanation for nonlinear motion. The adaptive learning / bounded rationality rule is not the only ingredient necessary for the absence of a long run steady state; heterogeneity must also imply that the several behavior possibilities alternate as the best behavioral choice. Only in such circumstances heterogeneity persists and an unpredictable outcome is likely to arise. The paper develops two models. The first is a generic approach that exemplifies how heterogeneity concerning the volatility of two stochastic processes may lead to chaotic motion; the second is a utility maximization setup, where the source of heterogeneity is investment decisions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series GE, Growth, Math methods with number 0409010.
Length: 18 pages
Date of creation: 28 Sep 2004
Date of revision:
Note: Type of Document - pdf; pages: 18
Contact details of provider:
Web page: http://126.96.36.199
Heterogeneous agents; Bounded rationality; Chaos; Volatility;
Other versions of this item:
- Orlando Gomes, . "Volatility, Heterogeneous Agents and Chaos," The Electronic Journal of Evolutionary Modeling and Economic Dynamics, IFReDE - Université Montesquieu Bordeaux IV.
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-10-18 (All new papers)
- NEP-DCM-2004-10-18 (Discrete Choice Models)
- NEP-MAC-2004-10-18 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kurz, Mordecai, 1994. "On the Structure and Diversity of Rational Beliefs," Economic Theory, Springer, vol. 4(6), pages 877-900, October.
- Negroni, Giorgio, 2003. "Adaptive expectations coordination in an economy with heterogeneous agents," Journal of Economic Dynamics and Control, Elsevier, vol. 28(1), pages 117-140, October.
- William A. Brock & Cars H. Hommes, 1997.
"A Rational Route to Randomness,"
Econometric Society, vol. 65(5), pages 1059-1096, September.
- Florian Wagener & Jan Tuinstra, 2004.
"On Learning Equilibria,"
Computing in Economics and Finance 2004
217, Society for Computational Economics.
- Stephanie Schmitt-Grohe & Jess Benhabib & Martin Uribe, 2001.
"Monetary Policy and Multiple Equilibria,"
American Economic Review,
American Economic Association, vol. 91(1), pages 167-186, March.
- Jess Benhabib & Stephanie Schmitt-Grohe & Martin Uribe, 1998. "Monetary policy and multiple equilibria," Finance and Economics Discussion Series 1998-29, Board of Governors of the Federal Reserve System (U.S.).
- Benhabib, Jess & Schmitt-Grohé, Stephanie & Uribe, Martín, 1999. "Monetary Policy and Multiple Equilibria," CEPR Discussion Papers 2316, C.E.P.R. Discussion Papers.
- Jess Benhabib & Stephanie Schmitt-Grohe & Martin Uribe, 1999. "Monetary Policy and Multiple Equilibria," Departmental Working Papers 199914, Rutgers University, Department of Economics.
- Benhabib, J. & Schmitt-Grohe, S. & Uribe, M., 1998. "Monetary Policy and Multiple Equilibria," Working Papers 98-02, C.V. Starr Center for Applied Economics, New York University.
- Benhabib, Jess & Schmitt-Grohé, Stephanie & Uribe, Martín, 1999.
"The Perils of Taylor Rules,"
CEPR Discussion Papers
2314, C.E.P.R. Discussion Papers.
- Benhabib, Jess & Schmitt-Grohe, Stephanie & Uribe, Martin, 1998. "The Perils of Taylor Rules," Working Papers 98-37, C.V. Starr Center for Applied Economics, New York University.
- Jess Benhabib & Stephanie Schmitt-Grohe & Martin Uribe, 1998. "The perils of Taylor Rules," Departmental Working Papers 199831, Rutgers University, Department of Economics.
- James Bullard & John Duffy, 1994.
"A model of learning and emulation with artificial adaptive agents,"
1994-014, Federal Reserve Bank of St. Louis.
- Bullard, James & Duffy, John, 1998. "A model of learning and emulation with artificial adaptive agents," Journal of Economic Dynamics and Control, Elsevier, vol. 22(2), pages 179-207, February.
- Benhabib, Jess & Schmitt-Grohe, Stephanie & Uribe, Martin, 2001.
"Chaotic Interest Rate Rules,"
Computing in Economics and Finance 2001
259, Society for Computational Economics.
- Emilio Barucci, 1999. "Heterogeneous beliefs and learning in forward looking economic models," Journal of Evolutionary Economics, Springer, vol. 9(4), pages 453-464.
- James Bullard & John Duffy, 1994.
"Using genetic algorithms to model the evolution of heterogeneous beliefs,"
1994-028, Federal Reserve Bank of St. Louis.
- Bullard, James & Duffy, John, 1999. "Using Genetic Algorithms to Model the Evolution of Heterogeneous Beliefs," Computational Economics, Society for Computational Economics, vol. 13(1), pages 41-60, February.
- James Bullard & John Duffy, 2010. "Using genetic algorithms to model the evolution of heterogenous beliefs," Levine's Working Paper Archive 550, David K. Levine.
- Brock, William A. & Hommes, Cars H., 1998.
"Heterogeneous beliefs and routes to chaos in a simple asset pricing model,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 22(8-9), pages 1235-1274, August.
- Azariadis, Costas & Kaas, Leo, 2007. "Asset price fluctuations without aggregate shocks," Journal of Economic Theory, Elsevier, vol. 136(1), pages 126-143, September.
- Mordecai Kurz & Maurizio Motolese, .
"Endogenous Uncertainty and Market Volatility,"
99005, Stanford University, Department of Economics.
- Arifovic, Jasmina, 1994. "Genetic algorithm learning and the cobweb model," Journal of Economic Dynamics and Control, Elsevier, vol. 18(1), pages 3-28, January.
- Marco Casari, 2003. "Does bounded rationality lead to individual heterogeneity? The impact of the experimentation process and of memory constraints," UFAE and IAE Working Papers 583.03, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Orlando Gomes, 2007. "The Dynamics of Growth and Migrations with Congestion Externalities," Economics Bulletin, AccessEcon, vol. 15(1), pages 1-8.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.