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Heterogeneous Agent Models: Two Simple Case Studies

C. H. Hommes

University of Amsterdam; CeNDEF; Tinbergen Institute

May 2005

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

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.

Number of Pages in PDF File: 36

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

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

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Date posted: June 6, 2005  

Suggested Citation

Hommes, C. 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

Contact Information

C. H. Hommes (Contact Author)
University of Amsterdam ( email )
Roetersstraat 11
Amsterdam, 1018WB
CeNDEF ( email )
Roetersstraat 11
Amsterdam, NL-1018WB
HOME PAGE: http://www1.fee.uva.nl/cendef/
Tinbergen Institute ( email )
Burg. Oudlaan 50
Rotterdam, 3062 PA
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