The Behavior of Savings and Asset Prices When Preferences and Beliefs are Heterogeneous

A powerful isomorphism allows differences in time preference and expectations to be swept away in the analysis, yielding an equivalent economy whose agents differ merely in risk aversion. These results hold great potential to simplify the analysis of heterogeneous-agent economies, as we demonstrate in quantifying how asset prices move and bounding their volatilities. All results are obtained in closed form for any number of agents possessing additively separable preferences in an endowment economy