TY - JOUR
T1 - Behavioral equilibrium and evolutionary dynamics in asset markets
AU - Evstigneev, Igor
AU - Hens, Thorsten
AU - Potapova, Valeriya
AU - Schenk-Hoppé, Klaus R.
PY - 2020/9/24
Y1 - 2020/9/24
N2 - This paper analyzes a dynamic stochastic equilibrium model of an asset market based on behavioral and evolutionary principles. The core of the model is a non-traditional game-theoretic framework combining elements of stochastic dynamic games and evolutionary game theory. Its key characteristic feature is that it relies only on objectively observable market data and does not use hidden individual agents’ characteristics (such as their utilities and beliefs). A central goal of the study is to identify an investment strategy that allows an investor to survive in the market selection process, i.e., to keep with probability one a strictly positive, bounded away from zero share of market wealth over an infinite time horizon, irrespective of the strategies used by the other players. The main results show that under very general assumptions, such a strategy exists, is asymptotically unique and easily computable. The paper resolves long-standing open problems that remained open for about a decade.
AB - This paper analyzes a dynamic stochastic equilibrium model of an asset market based on behavioral and evolutionary principles. The core of the model is a non-traditional game-theoretic framework combining elements of stochastic dynamic games and evolutionary game theory. Its key characteristic feature is that it relies only on objectively observable market data and does not use hidden individual agents’ characteristics (such as their utilities and beliefs). A central goal of the study is to identify an investment strategy that allows an investor to survive in the market selection process, i.e., to keep with probability one a strictly positive, bounded away from zero share of market wealth over an infinite time horizon, irrespective of the strategies used by the other players. The main results show that under very general assumptions, such a strategy exists, is asymptotically unique and easily computable. The paper resolves long-standing open problems that remained open for about a decade.
U2 - 10.1016/j.jmateco.2020.09.004
DO - 10.1016/j.jmateco.2020.09.004
M3 - Article
VL - 91
SP - 121
EP - 135
JO - Journal of Mathematical Economics
JF - Journal of Mathematical Economics
SN - 0304-4068
ER -