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Controlling chaos in a model with heterogeneous beliefs

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  • Heilig, Stephan
  • Schöbel, Rainer

Abstract

In this paper we generalize a chaos control method developed by Ott, Grebogi and Yorke (1990) to control saddle points in R2 which are embadded in a strange attractor of a chaotic system. Our generalized method admits to control any unstable equilibrium in R2. We apply our findings to control the dynamics of the chaotic asset pricing model of Brock and Hommes (1998). In this model chaotic price movements are caused by heterogenous market participants. We introduce a control authority which trades the risky asset like the other market participants. Using our control approach, it is possible for the authority to stabilize the market price with minimum effort.

Suggested Citation

  • Heilig, Stephan & Schöbel, Rainer, 2001. "Controlling chaos in a model with heterogeneous beliefs," Tübinger Diskussionsbeiträge 205, University of Tübingen, School of Business and Economics.
    • Handle: RePEc:zbw:tuedps:205
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    Cited by:

    1. Pitterle, Ingo & Steffen, Dirk, 2004. "Welfare Effects of Fiscal Policy under Alternative Exchange Rate Regimes : The Role of the Scale Variable of Money Demand," Tübinger Diskussionsbeiträge 284, University of Tübingen, School of Business and Economics.
    2. Manfred Stadler & Rüdiger Wapler, 2004. "Endogenous Skilled-biased Technological Change and Matching Unemployment," Journal of Economics, Springer, vol. 81(1), pages 1-24, January.
    3. Koepke, Nikola & Baten, Joerg, 2005. "The biological standard of living in Europe during the last two millennia," European Review of Economic History, Cambridge University Press, vol. 9(1), pages 61-95, April.
    4. Stadler, Manfred, 2003. "Innovation and growth: The role of labor-force qualification," Tübinger Diskussionsbeiträge 255, University of Tübingen, School of Business and Economics.
    5. Baten, Jörg & Wallusch, Jacek, 2003. "Market integration and disintegration of Poland and Gemany [Germany] in the 18th century," Tübinger Diskussionsbeiträge 268, University of Tübingen, School of Business and Economics.

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