Download this Paper Open PDF in Browser

Heterogeneous Agent Models: Two Simple Case Studies

Tinbergen Institute Discussion Paper No. TI 05-055/1

36 Pages Posted: 6 Jun 2005  

Cars H. Hommes

University of Amsterdam - Amsterdam School of Economics (ASE); CeNDEF; Tinbergen Institute

Date Written: May 2005

Abstract

These notes review two simple heterogeneous agent models in economics and finance. The first is a cobweb model with rational versus naive agents introduced in Brock and Hommes (1997). The second is an asset pricing model with fundamentalists versus technical traders introduced in Brock and Hommes (1998). Agents are boundedly rational and switch between different trading strategies, based upon an evolutionary fitness measure given by realized past profits. Evolutionary switching creates a nonlinearity in the dynamics. Rational routes to randomness, that is, bifurcation routes to complicated dynamical behaviour occur when agents become more sensitive to differences in evolutionary fitness.

Keywords: Interacting agents, complex adaptive systems, evolutionary dynamics, bounded rationality, nonlinear dynamics, bifurcations and chaos

JEL Classification: B4, C0, C6, D84, E3, G1, G12

Suggested Citation

Hommes, Cars H., Heterogeneous Agent Models: Two Simple Case Studies (May 2005). Tinbergen Institute Discussion Paper No. TI 05-055/1. Available at SSRN: https://ssrn.com/abstract=738423 or http://dx.doi.org/10.2139/ssrn.738423

Cars H. Hommes (Contact Author)

University of Amsterdam - Amsterdam School of Economics (ASE) ( email )

Center for Nonlinear Dynamics in Economics and Finance
1018 WB Amsterdam
Netherlands
+31 20 525 4246 (Phone)
+31 20 525 4349 (Fax)

CeNDEF ( email )

Roetersstraat 11
Amsterdam, NL-1018WB
Netherlands

HOME PAGE: http://www1.fee.uva.nl/cendef/

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Paper statistics

Downloads
186
Rank
137,366
Abstract Views
1,026