Endogenous Price Bubbles in a Multi-Agent System of the Housing Market

Roy Kouwenberg and Remco Zwinkels ()

PLOS ONE, 2015, vol. 10, issue 6, 1-10

Abstract: Economic history shows a large number of boom-bust cycles, with the U.S. real estate market as one of the latest examples. Classical economic models have not been able to provide a full explanation for this type of market dynamics. Therefore, we analyze home prices in the U.S. using an alternative approach, a multi-agent complex system. Instead of the classical assumptions of agent rationality and market efficiency, agents in the model are heterogeneous, adaptive, and boundedly rational. We estimate the multi-agent system with historical house prices for the U.S. market. The model fits the data well and a deterministic version of the model can endogenously produce boom-and-bust cycles on the basis of the estimated coefficients. This implies that trading between agents themselves can create major price swings in absence of fundamental news.

Date: 2015
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:plo:pone00:0129070

DOI: 10.1371/journal.pone.0129070

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