This paper attempts to identify, in a framework deliberately stripped of unnecessary technicalities, some of the basic reasons why adaptative learning may or may not lead to stability and convergence to self-fulfilling expectations in large socioeconomic systems where no agent, or collection of...

We develop a model which accounts for the observed equity premium and average risk free rate, without implying counterfactually high risk aversion. The model also does well in accounting for business cycle phenomena.