Skip to Main content Skip to Navigation
Journal articles

Evolutionary beliefs and financial markets

Abstract : Why do investors keep different opinions even though they learn from their own failures and successes? Why do investors keep different opinions even though they observe each other and learn from their relative failures and successes? We analyze beliefs dynamics when beliefs result from a very general learning process that favors beliefs leading to higher absolute or relative utility levels. We show that such a process converges to the Nash equilibrium in a game of strategic belief choices. The asymptotic beliefs are subjective and heterogeneous across the agents. Optimism (resp. overconfidence) as well as pessimism (resp. doubt) both emerge from the learning process. Furthermore, we obtain a positive correlation between pessimism (resp. doubt) and risk-tolerance. Under reasonable assumptions, beliefs exhibit a pessimistic bias and, as a consequence, the risk premium is higher than in a standard setting.
Document type :
Journal articles
Complete list of metadata

https://halshs.archives-ouvertes.fr/halshs-00927265
Contributor : Elyès Jouini Connect in order to contact the contributor
Submitted on : Monday, January 13, 2014 - 10:59:43 PM
Last modification on : Wednesday, November 17, 2021 - 12:27:12 PM
Long-term archiving on: : Saturday, April 8, 2017 - 2:23:57 PM

File

A56.pdf
Files produced by the author(s)

Identifiers

Collections

Citation

Elyès Jouini, Clotilde Napp, Yannick Viossat. Evolutionary beliefs and financial markets. Review of Finance, Oxford University Press (OUP): Policy F - Oxford Open Option D, 2013, 17 (2), pp.727-766. ⟨10.1093/rof/rfs004⟩. ⟨halshs-00927265⟩

Share

Metrics

Record views

385

Files downloads

465