Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/85911
Authors: 
Diks, Cees
van der Weide, Roy
Year of Publication: 
2003
Series/Report no.: 
Tinbergen Institute Discussion Paper 03-007/1
Abstract: 
We propose a general framework for studying the evolution ofheterogeneous beliefs in a dynamic feedback setting. Beliefsdistributions are defined on a continuous space representingthe possible strategies agents can choose from. Agents base theirchoices on past performances. As new information becomesavailable strategies are re-evaluated and the beliefsdistribution is updated using a continuous choice model. Thisapproach gives rise to price dynamics in which the beliefsdistribution evolves together with realized prices. Thestatistical properties of the endogenous random pricefluctuations are fully determined by the model. The structure ofthe macroscopic model depends on the class of predictors and onthe performance measure used by the agents. Whenever a well-knowneconometric model is obtained, an economic interpretation of themodel parameters can be given, as is shown here for an ARCHmodel. The approach is illustrated with several examples andempirical applications.
Subjects: 
Expectation formation
Heterogeneity
Continuous beliefs
JEL: 
C00
D84
G12
Document Type: 
Working Paper

Files in This Item:
File
Size
697.07 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.