Learning and Adaptation as a Source of Market Failure
نویسنده
چکیده
A dynamic model of financial markets with learning and strategy adoption is demonstrated to produce episodes of market failure. Traders engage in learning to improve their understanding of the relationship between observed prices and future payoffs. Traders also choose between strategies based on fundamental research or on extracting information from market data. The two evolutionary processes interact and can produce extreme price deviations and conditions for which no market clearing price exists. JEL codes: G14, C62, D82
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