Representative and Heterogeneous Agents: Theory and Evidence
30 Pages Posted: 6 Jun 2006 Last revised: 8 Dec 2018
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Representative and Heterogeneous Agents: Theory and Evidence
Does Income Risk Explain the Degree of Under-Diversification in Equity Portfolios?
Date Written: May 9, 2009
Abstract
This paper analyzes the theoretical and empirical findings for representative and heterogeneous agents for a host of economic issues including market completeness, consumption growth variability, income risk, equilibrium interest rate, and welfare gains from eliminating a Real Business Cycle (RBC). We introduce three types of heterogeneity: state, preferences, and beliefs and show that in some cases the heterogeneous agent framework can be viewed as complementary to the representative agent, whereas in other cases it can be seen as a substitute.
Keywords: Real business cycle, preferences, time inconsistent, and behavior finance
JEL Classification: D84, E32, E43, G12, G14
Suggested Citation: Suggested Citation