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Behavioral Equilibrium and Evolutionary Dynamics

In: Mathematical Financial Economics

Author

Listed:
  • Igor V. Evstigneev

    (University of Manchester)

  • Thorsten Hens

    (University of Zurich)

  • Klaus Reiner Schenk-Hoppé

    (University of Manchester)

Abstract

This chapter presents a new approach to the modelling of financial markets combining behavioural and evolutionary principles. It describes a dynamic equilibrium model with long-lived dividend-paying assets in which the notion of a short-run equilibrium is defined directly in terms of the strategy profile of investors, rather than their (typically unobservable) individual utilities and beliefs. This approach makes it possible to reflect a whole variety of patterns of market behaviour, not necessarily describable in terms of utility maximization. The highlight of the chapter is a result describing an (asymptotically unique) evolutionary stable strategy, guaranteeing ”survival” in the market selection process.

Suggested Citation

  • Igor V. Evstigneev & Thorsten Hens & Klaus Reiner Schenk-Hoppé, 2015. "Behavioral Equilibrium and Evolutionary Dynamics," Springer Texts in Business and Economics, in: Mathematical Financial Economics, edition 127, chapter 20, pages 197-204, Springer.
    • Handle: RePEc:spr:sptchp:978-3-319-16571-4_20
    DOI: 10.1007/978-3-319-16571-4_20
    as

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