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Evolution of wealth and asset prices in markets with case-based investors

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  • Guerdjikova, Ani

Abstract

I analyze whether case-based decision makers (CBDM) can survive in an assetmarket in the presence of expected utilitymaximizers. Conditions are identified, under which the CBDM retain a positive mass with probability one. CBDM can cause predictability of asset returns, high volatility and bubbles. It is found that the expected utility maximizers can disappear from the market for a finite period of time, if the mispricing of the risky asset caused by the case-based decision-makers aggravates too much. Only in the case of logarithmic expected utility maximizers do the case-based decision makers disappear from the market for all parameter values.

Suggested Citation

  • Guerdjikova, Ani, 2004. "Evolution of wealth and asset prices in markets with case-based investors," Papers 04-49, Sonderforschungsbreich 504.
    • Handle: RePEc:mnh:spaper:2693
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    File URL: https://madoc.bib.uni-mannheim.de/2693/1/dp04_49.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    asset pricing ; bubbles ; volatility ; case-based decision theory ; evolution;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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