Microfoundations for Switching Behavior in Heterogeneous Agent Models: An Experiment

Mikhail Anufriev, Te Bao and Jan Tuinstra

No 15-09, CeNDEF Working Papers from Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance

Abstract: We run a laboratory experiment to study how people switch between several profitable alternatives, framed as mutual funds, in order to provide a microfoundation for so-called heterogeneous agent models. The participants in our experiment have to choose repeatedly between two, three or four experimental funds. The time series of fund returns are exogenously generated prior to the experiment and participants are paid for each period according to the return of the fund they choose. For most cases participants' decisions can be successfully described by a discrete choice switching model, often applied in heterogeneous agent models, provided that a predisposition towards one of the funds is included. The estimated intensity of choice parameter of the discrete choice model depends on the structure of the fund returns. In particular, it increases with correlation between past and future returns. This suggests people do not myopically chase past returns, but are more likely to do so when past returns are more predictive of future returns, a feature that is absent in the standard heterogeneous agent models.

Date: 2015
New Economics Papers: this item is included in nep-cbe and nep-exp
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Journal Article: Microfoundations for switching behavior in heterogeneous agent models: An experiment (2016)
Working Paper: Microfoundations for Switching Behavior in Heterogeneous Agent Models: An Experiment (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ams:ndfwpp:15-09

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