 Market equilibria under procedural rationalityMikhail Anufriev and Giulio Bottazzi Journal of Mathematical Economics, 2010, vol. 46, issue 6, 1140-1172 Abstract: Abstract We analyze the endogenous price formation mechanism of a pure exchange economy with two assets, riskless and risky. The economy is populated by an arbitrarily large number of traders whose investment choices are described by means of generic smooth functions of past realizations. These choices can be consistent with (but not limited to) the solutions of expected utility maximization problems. Under the assumption that individual demand for the risky asset is expressed as a fraction of individual wealth, we derive a complete characterization of equilibria. It is shown that irrespectively of the number of agents and of their behavior, all possible equilibria belong to a one-dimensional "Equilibrium Market Curve". This geometric tool helps to illustrate the possibility of different phenomena, as multiple equilibria, and can be used for comparative static analysis. We discuss the relative performances of different strategies and the selection principle governing market dynamics on the basis of the stability analysis of equilibria. Keywords: Asset; pricing; model; Procedural; rationality; Heterogeneous; agents; CRRA; framework; Equilibrium; market; curve; Stability; analysis; Multiple; equilibria (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:46:y:2010:i:6:p:1140-1172 Access Statistics for this article Journal of Mathematical Economics is currently edited by Atsushi (A.) Kajii More articles in Journal of Mathematical Economics from Elsevier |
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