Behavioral equilibrium and evolutionary dynamics in asset markets

Igor V. Evstigneev (University of Manchester), Thorsten Hens (University of Zurich, Norwegian School of Economics, and Swiss Finance Institute), Valeriya Potapova (University of Manchester), Klaus Reiner Schenk-Hoppé (University of Manchester and Norwegian School of Economics)

This paper analyzes a dynamic stochastic equilibrium model of an asset market based on behavioral and evolutionary principles. The core of the model is a non-traditional game-theoretic framework combining elements of stochastic dynamic games and evolutionary game theory. Its key characteristic feature is that it relies only on objectively observable market data and does not use hidden individual agents' characteristics (such as their utilities and beliefs). A central goal of the study is to identify an investment strategy that allows an investor to survive in the market selection process, i.e., to keep with probability one a strictly positive, bounded away from zero share of market wealth over an infinite time horizon, irrespective of the strategies used by the other players. The main results show that under very general assumptions, such a strategy exists, is asymptotically unique and easily computable

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Year of publication:	2020
Authors:	Evstigneev, Igor V. ; Hens, Thorsten ; Potapova, Valeriya ; Schenk-Hoppé, Klaus Reiner
Publisher:	Geneva : Swiss Finance Institute
Subject:	Evolutionary nance \| Behavioral nance \| Stochastic dynamic games \| DSGE \| survival portfolio rules \| Evolutionäre Spieltheorie \| Evolutionary game theory \| Portfolio-Management \| Portfolio selection \| Dynamisches Gleichgewicht \| Dynamic equilibrium \| Dynamisches Spiel \| Dynamic game \| Evolutionsökonomik \| Evolutionary economics \| Finanzmarkt \| Financial market \| Stochastischer Prozess \| Stochastic process \| Stochastisches Spiel \| Stochastic game \| Gleichgewichtstheorie \| Equilibrium theory \| Begrenzte Rationalität \| Bounded rationality