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Heterogeneous Expectations, Dynamics, and Stability of Markets

Abstract : This paper examines the role of heterogeneous beliefs in a cobweb model. For that purpose, we study the price dynamics resulting from the interaction of agents whose price expectations differ. We proceed in two stages. First, two groups of agents are distinguished. They are either fundamentalists, or chartists. The latter specify the expected price from an adaptive process, the former consider the expected price as the steady state price, they then display "rational behaviour". Second, we enrich the model by allowing that agents may choose between rational expectations and a simple adaptive process. Our work shows how market stability alters as the proportion of fundamentalists relative to chartists varies. We demonstrate two propositions. The market behaviour of fundamentalists compared to chartists promotes market stability. The existence of market stability depends on the specification of the expectations and the intensity of switching between the two behaviours. JEL Classification: C62, D84, E30.
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Submitted on : Monday, June 24, 2019 - 10:27:10 AM
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  • HAL Id : hal-02163226, version 1



Laurence Lasselle, Serge Svizzero, Clement Allan Tisdell. Heterogeneous Expectations, Dynamics, and Stability of Markets. Royal Economic Society Annual Conference, Apr 2003, Warwick, United Kingdom. ⟨hal-02163226⟩



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