We study natural selection in complete financial markets, populated by heterogeneous agents. We allow for a rich structure of heterogeneity: Individuals may differ in their beliefs concerning the economy, information and learning mechanism, risk aversion, impatience (time preference rate) and degree of habits . We develop new techniques for studying long run behavior of such economies, based on the Strassen's functional law of iterated logarithm. In particular, we explicitly determine an agent's survival index and show how the latter depends on the agent's characteristics. We use these results to study the long run behavior of the equilibrium interest rate and the market price of risk.
We study the market selection hypothesis in complete financial markets, populated by heterogeneous agents. We allow for a rich structure of heterogeneity: individuals may differ in their beliefs concerning the economy, information and learning mechanism, risk aversion, impatience and 'catching up with Joneses' preferences . We develop new techniques for studying the long-run behavior of such economies, based on the Strassen's functional law of iterated logarithm. In particular, we explicitly determine an agent's survival index and show how the latter depends on the agent's characteristics. We use these results to study the long-run behavior of the equilibrium interest rate and the market price of risk.
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natural selection
the market selection hypothesis
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Individuals
individuals
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(time preference rate) and degree of habits
and 'catching up with Joneses' preferences
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long run
the long-run
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long run
long-run