Rational vs. irrational beliefs in a complex world

Gregor Boehl, Cars Hommes

Can boundedly rational agents survive competition with fully rational agents? The authors develop a highly nonlinear heterogeneous agents model with rational forward looking versus boundedly rational backward looking agents and evolving market shares depending on their relative performance. Their novel numerical solution method detects equilibrium paths characterized by complex bubble and crash dynamics. Boundedly rational trend-extrapolators amplify small deviations from fundamentals, while rational agents anticipate market crashes after large bubbles and drive prices back close to fundamental value. Overall rational and non-rational beliefs co-evolve over time, with time-varying impact, and their interaction produces complex endogenous bubble and crashes, without any exogenous shocks.

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Year of publication:	[2021]
Authors:	Böhl, Gregor ; Hommes, Cars H.
Publisher:	Frankfurt am Main : Institute for Monetary and Financial Stability, Goethe University Frankfurt
Subject:	Heterogeneous agents \| trend-extrapolation \| bubbles \| numerical solution method \| Spekulationsblase \| Bubbles \| Theorie \| Theory \| Rationalität \| Rationality \| Agentenbasierte Modellierung \| Agent-based modeling \| Erwartungsbildung \| Expectation formation \| Numerisches Verfahren \| Numerical analysis \| Begrenzte Rationalität \| Bounded rationality \| Anlageverhalten \| Behavioural finance \| Rationale Erwartung \| Rational expectations

Extent:	1 Online-Ressource (circa 47 Seiten) Illustrationen
Series:	Working paper series / Institute for Monetary and Financial Stability. - Frankfurt am Main : Johann Wolfgang Goethe-Univ., ZDB-ID 2527683-9. - Vol. no. 156 (2021)
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Graue Literatur ; Non-commercial literature ; Arbeitspapier ; Working Paper
Language:	English
Other identifiers:	hdl:10419/233208 [Handle]
Classification:	C63 - Computational Techniques ; e03 ; E32 - Business Fluctuations; Cycles ; E44 - Financial Markets and the Macroeconomy ; E51 - Money Supply; Credit; Money Multipliers
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10012502090