We introduce a simple equilibrium model of a market for loans, where households lend to firms based on heterogeneous expectations about their loan default probability. Agents select among heterogeneous expectation rules, based upon their relative performance. A small fraction of pessimistic...

We introduce a simple equilibrium model of a market for loans, where households lend to firms based on heterogeneous expectations about their loan default probability. Agents select among heterogeneous expectation rules, based upon their relative performance. A small fraction of pessimistic...

We introduce a simple equilibrium model of a market for loans, where households lend to firms based on heterogeneous expectations about their loan default probability. Agents select among heterogeneous expectation rules, based upon their relative performance. A small fraction of pessimistic...

This paper formalizes the idea that more hedging instruments may destabilize markets when traders are heterogeneous and adapt their behavior according to experience based reinforcement learning. We investigate three different economic settings, a simple mean-variance asset pricing model, a...

There is a general argument saying that adding derivative securities (options) to a financial market makes the market more efficient, and has therefore a stabilising effect. We investigate this claim by adding Arrow securities on future states of the world in the asset pricing model with...

This discussion paper resulted in a publication in the <I>Journal of Economic Dynamics & Control</I>. Volume 33(11), pp. 1912-1928.<P> This paper formalizes the idea that more hedging instruments may destabilize markets when traders are heterogeneous and adapt their behavior according to experience based...</p></i>

In an economic geography model where both a negative pecuniary and a positive technological externality are present, we introduce an explicit dynamics of firms locational choice and we characterize its long run distribution. Our analysis shows that economic activities evenly distribute when the...

Using an analytically solvable general equilibrium model, we study how the distribution of economic activities is affected by the trade-off between pecuniary externalities, as dependent on transportation costs, and localized technological externalities, as dependent on inter-regional spillovers....

We study the co-evolution of asset prices and individual wealth in a financial market populated by an arbitrary number of heterogeneous boundedly rational investors. Using wealth dynamics as a selection device we are able to characterize the long run market outcomes, i.e. asset returns and...