A Peer-based Model of Fat-tailed Outcomes

Ben Klemens

Papers from arXiv.org

Abstract: It is well known that the distribution of returns from various financial instruments are leptokurtic, meaning that the distributions have "fatter tails" than a Normal distribution, and have skew toward zero. This paper presents a graceful micro-level explanation for such fat-tailed outcomes, using agents whose private valuations have Normally-distributed errors, but whose utility function includes a term for the percentage of others who also buy.

Date: 2013-04
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1304.0718

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