Complex evolutionary systems in behavioral finance

Cars Hommes and Florian Wagener

No 08-05, CeNDEF Working Papers from Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance

Abstract: Traditional finance is built on the rationality paradigm. This chapter discusses simple models from an alternative approach in which financial markets are viewed as complex evolutionary systems. Agents are boundedly rational and base their investment decisions upon market forecasting heuristics. Prices and beliefs about future prices co-evolve over time with mutual feedback. Strategy choice is driven by evolutionary selection, so that agents tend to adopt strategies that were successful in the past. Calibration of "simple complexity models" with heterogeneous expectations to real financial market data and laboratory experiments with human subjects are also discussed.

Date: 2008
New Economics Papers: this item is included in nep-cba, nep-cbe, nep-evo, nep-exp and nep-pke
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Citations: View citations in EconPapers (26)

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Working Paper: Complex Evolutionary Systems in Behavioral Finance (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ams:ndfwpp:08-05

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