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Evolutionary dynamics in markets with many trader types

  • Brock, W.A.

    (University of Wisconsin)

  • Hommes, C.H.
  • Wagener, F.O.O.


    (Universiteit van Amsterdam)

This paper develops the notion of a Large Type Limit (LTL) describing the dynamical behavior of heterogeneous markets with many trader types. It is shown that generic and persistent features of adaptive evolutionary systems with many trader types are well described by the large type limit. Stability and bifurcation routes to instability and strange attractors in a simple evolutionary financial market model are studied. An increase in the ``intensity of adaption'' or in the diversity of beliefs may lead to deviations from an unstable RE fundamental benchmark and excess volatility. A large evolutionary system may thus become unstable and complicated dynamics may arise when agents become sensitive to small differences in fitness.

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Paper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 02-10.

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Date of creation: 2002
Date of revision:
Handle: RePEc:ams:ndfwpp:02-10
Contact details of provider: Postal: Dept. of Economics and Econometrics, Universiteit van Amsterdam, Roetersstraat 11, NL - 1018 WB Amsterdam, The Netherlands
Phone: + 31 20 525 52 58
Fax: + 31 20 525 52 83
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