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Evolution of Wealth and Asset Prices in Markets with Case-Based Investors

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  • Guerdjikova, Ani

    (Cornell University)

Abstract

I analyze whether case-based decision makers (CBDM) can survive in an assetmarket in the presence of expected utilitymaximizers. Conditions are identified, under which the CBDM retain a positive mass with probability one. CBDM can cause predictability of asset returns, high volatility and bubbles. It is found that the expected utility maximizers can disappear from the market for a finite period of time, if the mispricing of the risky asset caused by the case-based decision-makers aggravates too much. Only in the case of logarithmic expected utility maximizers do the case-based decision makers disappear from the market for all parameter values.

Suggested Citation

  • Guerdjikova, Ani, 2004. "Evolution of Wealth and Asset Prices in Markets with Case-Based Investors," Sonderforschungsbereich 504 Publications 04-49, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    • Handle: RePEc:xrs:sfbmaa:04-49
    Note: I am indebted to my advisor Juergen Eichberger for his helpful guidance. I would like to thank Hans Haller,
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    File URL: http://www.sfb504.uni-mannheim.de/publications/dp04-49.pdf
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    References listed on IDEAS

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