A Behavioral Foundation for Commonly Observed Distributions of Financial and Economic Data

Keith Blackwell ()

No 1912, Working Papers from New School for Social Research, Department of Economics

Abstract: This paper introduces a simple symmetric Quantal Response Statistical Equilibrium (QRSE) model that can fit many commonly observed distributions of Economic and Financial data including Laplace, Gaussian, Logistic, and Student’s T distributions. This paper also introduces the application of QRSE to a financial market setting. A QRSE market model uses joint probability distribution of asset returns and entropy constrained buy/sell decisions of investors to explain stylized facts we commonly observe in the distributions of asset returns and economic data such as fat-tails, excess peakedness, and skew. Using the simplified model, this paper extends the existing logic and understanding of QRSE in order to provide a behavioral explanation for these commonly observed distributions of data.

Pages: 26 pages
Date: 2019-08
New Economics Papers: this item is included in nep-ecm and nep-hme
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Citations: View citations in EconPapers (1)

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http://www.economicpolicyresearch.org/econ/2019/NSSR_WP_122019.pdf First version, 2019 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:new:wpaper:1912

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