Heterogeneity, Selection, and Wealth Dynamics

Posted: 18 Oct 2010

See all articles by Lawrence E. Blume

Lawrence E. Blume

Cornell University - Department of Economics; Institute for Advanced Studies (IHS)

David Easley

Cornell University - Department of Economics; Cornell University - Department of Information Science

Date Written: March 2010

Abstract

The market selection hypothesis states that, among expected utility maximizers, competitive markets select for agents with correct beliefs. In some economies this hypothesis holds, whereas in others it fails. It holds in complete-markets economies with a common discount factor and bounded aggregate consumption. It can fail when markets are incomplete, when consumption grows too quickly, or when discount factors and beliefs are correlated. These insights have implications for the general equilibrium modeling of asset prices and macroeconomic phenomena.

Suggested Citation

Blume, Lawrence E. and Easley, David, Heterogeneity, Selection, and Wealth Dynamics (March 2010). Annual Review of Economics, Vol. 2, pp. 425-450, 2010, Available at SSRN: https://ssrn.com/abstract=1693043 or http://dx.doi.org/10.1146/annurev.economics.102308.124403

Lawrence E. Blume (Contact Author)

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-9530 (Phone)

Institute for Advanced Studies (IHS)

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Austria

David Easley

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-6283 (Phone)
607-255-2818 (Fax)

Cornell University - Department of Information Science ( email )

402 Bill & Melinda Gates Hall
Ithaca, NY 14853
United States

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