Heterogeneous Agent Models: two simple examples

  • Cars Hommes
Part of the CISM International Centre for Mechanical Sciences book series (CISM, volume 476)


These notes review two simple heterogeneous agent models in economics and finance. The first is a cobweb model with rational versus naive agents introduced in Brock and Hommes (1997). The second is an asset pricing model with fundamentalists versus technical traders introduced in Brock and Hommes (1998). Agents are boundedly rational and switch endogenously between different trading strategies, based upon an evolutionary fitness measure given by realized past profits. Evolutionary switching creates a nonlinearity in the dynamic models. Rational routes to randomness, that is, bifurcation routes to complicated dynamical behavior occur when agents become more sensitive to differences in evolutionary fitness.


Unstable Manifold Trading Strategy Rational Expectation Risky Asset Asset Price Model 
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Copyright information

© CISM, Udine 2005

Authors and Affiliations

  • Cars Hommes
    • 1
  1. 1.CeNDEF, Department of Quantitative EconomicsUniversity of AmsterdamAmsterdamThe Netherlands

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