Handbook of Financial Markets: Dynamics and Evolution

Chapter 4. Complex Evolutionary Systems in Behavioral Finance

1. Introduction 218
2. An Asset-Pricing Model with Heterogeneous Beliefs 221
   1. The Fundamental Benchmark with Rational Agents 222
   2. Heterogeneous Beliefs 223
   3. Evolutionary Dynamics 224
   4. Forecasting Rules 225
3. Simple Examples 226
   1. Costly Fundamentalists vs. Trend Followers 227
   2. Fundamentalists vs. Opposite Biases 229
   3. Fundamentalists vs. Trend and Bias 230
   4. Efficiency 230
   5. Wealth Accumulation 232
   6. Extensions 236
4. Many Trader Types 236
5. Empirical Validation 241
   1. The Model in Price-to-Cash Flows 242
   2. Estimation of a Simple Two-Type Example 246
   3. Empirical Implications 251
6. Laboratory Experiments 253
   1. Learning to Forecast Experiments 255
   2. The Price-Generating Mechanism 256
   3. Benchmark Expectations Rules 257
   4. Aggregate ...