Heterogeneous Agent Models: Two Simple Case Studies

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

36 Pages Posted: 6 Jun 2005  

C. H. Hommes

University of Amsterdam; CeNDEF; Tinbergen Institute

Date Written: May 2005


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, 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

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

Paper statistics

Abstract Views