Evolution of wealth and asset prices in markets with case-based investors

Ani Guerdjikova

No 04-49, Papers from Sonderforschungsbreich 504

Abstract: I analyze whether case-based decision makers (CBDM) can survive in an assetmarket in the presence of expected utilitymaximizers. Conditions are identified, under which the CBDM retain a positive mass with probability one. CBDM can cause predictability of asset returns, high volatility and bubbles. It is found that the expected utility maximizers can disappear from the market for a finite period of time, if the mispricing of the risky asset caused by the case-based decision-makers aggravates too much. Only in the case of logarithmic expected utility maximizers do the case-based decision makers disappear from the market for all parameter values.

Keywords: asset pricing; bubbles; volatility; case-based decision theory; evolution (search for similar items in EconPapers)
JEL-codes: D81 G11 G12 (search for similar items in EconPapers)
Date: 2004
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