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Zbl 0913.90042
Brock, William A.; Hommes, Cars H.
Heterogeneous beliefs and routes to chaos in a simple asset pricing model. (English)
[J] J. Econ. Dyn. Control 22, No.8-9, 1235-1274 (1998). ISSN 0165-1889

Summary: This paper investigates the dynamics in a simple present discounted value asset pricing model with heterogeneous beliefs. Agents choose from a finite set of predictors of future prices of a risky asset and revise their `beliefs' in each period in a boundedly rational way, according to a `fitness measure' such as past realized profits. Price fluctuations are thus driven by an evolutionary dynamics between different expectation schemes (`rational animal spirits'). Using a mixture of local bifurcation theory and numerical methods, we investigate possible bifurcation routes to complicated asset price dynamics. In particular, we present numerical evidence of strange, chaotic attractors when the intensity of choice to switch prediction strategies is high.

MSC 2000:: *91B62 Dynamic economic models etc.
91B24 Price theory and market structure

Keywords: asset pricing; heterogeneous beliefs; bifurcation; local bifurcation theory; asset price dynamics; strange chaotic attractors

Cited in: Zbl 1239.91112 Zbl 1109.91027 Zbl 1065.91058 Zbl 0999.91020 Zbl 0949.91011

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