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Microfoundations for Switching Behavior in Heterogeneous Agent Models: An Experiment

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We run a laboratory experiment to study how people switch between several profitable alternatives, framed as mutual funds, in order to provide a microfoundation for so-called heterogeneous agent models. The participants in our experiment have to choose repeatedly between two, three or four experimental funds. The time series of fund returns are exogenously generated prior to the experiment and participants are paid for each period according to the return of the fund they choose. For most cases participants' decisions can be successfully described by a discrete choice switching model, often applied in heterogeneous agent models, provided that a predisposition towards one of the funds is included. The estimated intensity of choice parameter of the discrete choice model depends on the structure of the fund returns. In particular, it increases with correlation between past and future returns. This suggests people do not myopically chase past returns, but are more likely to do so when past returns are more predictive of future returns, a feature that is absent in the standard heterogeneous agent models.

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  • Mikhail Anufriev & Te Bao & Jan Tuinstra, 2015. "Microfoundations for Switching Behavior in Heterogeneous Agent Models: An Experiment," Working Paper Series 31, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
  • Handle: RePEc:uts:ecowps:31
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    Cited by:

    1. Mikhail Anufriev & Te Bao & Angela Sutan & Jan Tuinstra, 2018. "Fee Structure and Mutual Fund Choice: An Experiment," Working Paper Series 45, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    2. Giorgio Fagiolo & Mattia Guerini & Francesco Lamperti & Alessio Moneta & Andrea Roventini, 2017. "Validation of Agent-Based Models in Economics and Finance," LEM Papers Series 2017/23, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

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    Keywords

    Heterogeneuos agent models; discrete choice; switching; experiments;

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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