Heterogeneity, Selection, and Wealth Dynamics

Lawrence Blume and David Easley

Annual Review of Economics, 2010, vol. 2, issue 1, 425-450

Abstract: The market selection hypothesis states that, among expected utility maximizers, competitive markets select for agents with correct beliefs. In some economies this hypothesis holds, whereas in others it fails. It holds in complete-markets economies with a common discount factor and bounded aggregate consumption. It can fail when markets are incomplete, when consumption grows too quickly, or when discount factors and beliefs are correlated. These insights have implications for the general equilibrium modeling of asset prices and macroeconomic phenomena.

Keywords: market selection hypothesis; rational expectations; survival index; asset pricing (search for similar items in EconPapers)
JEL-codes: D52 E44 G12 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (12)

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