Evolution of wealth and asset prices in markets with case-based investors

Guerdjikova, Ani

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URL: http://ub-madoc.bib.uni-mannheim.de/2693
URN: urn:nbn:de:bsz:180-madoc-26935
Document Type: Working paper
Year of publication: 2004
The title of a journal, publication series: None
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject: 330 Economics
Classification: JEL: G11 D81 G12 ,
Subject headings (SWD): Börsenkurs , Anlageverhalten , Entscheidung , Erwarteter Nutzen , Kapitalmarkttheorie
Keywords (English): asset pricing , bubbles , volatility , case-based decision theory , evolution
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.
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