Heterogeneous Beliefs with Finite-Lived Agents

Details Heterogeneous Beliefs with Finite-Lived Agents Heterogeneous Beliefs with Finite-Lived Agents

2009-07-28

arxiv.org/abs/0907.4953v1

Economy

Quantitative Finance

General Finance

6 figures

Scientific paper

This paper will examine a model with many agents, each of whom has a different belief about the dynamics of a risky asset. The agents are Bayesian and so learn about the asset over time. All agents are assumed to have a finite (but random) lifetime. When an agent dies, he passes his wealth (but not his knowledge) onto his heir. As a result, the agents never become sure of the dynamics of the risky asset. We derive expressions for the stock price and riskless rate. We then use numerical examples to exhibit their behaviour.

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