This paper demonstrates that the dynamics of a rational learning process with private information differ substantially from those without such information. As has been shown by Jund and Vives (1996), the existence of private information has no effect upon the convergence of the learning process...

We study the relationship between default and the maturity structure of the debt portfolio of a Sovereign, under uncertainty. The Sovereign faces a trade-off between a future costly default and a high current fiscal effort. This results into a debt crisis in case a large initial issuance of long...

We study a model where investment decisions are based on investors’ information about the unknown and endogenous return of the investment. The information of investors consists of endogenously determined messages sold by financial analysts who have access to both public and private information...

In mainstream microeconomic theory firms are assumed to maximize profits. This useful assumption enables economists to derive demand and supply functions and estimate them with market data. The rarely asked question is: how do businessmen optimize and how closely do their efforts achieve optimum...

This paper presents tractable and efficient numerical solutions to general equilibrium models of asset prices and consumption when the representative agent has recursive preferences. It provides a discrete-time presentation of the approach of Fisher and Gilles (1998), treating continuous-time...

This paper applies evolutionary modeling to expectation formation of an asset's price. As a first step, I consider a population of n investors each of whom takes on one of two possible cultural variants. Every individual is a potential role model for all other individuals and can pass on their...

Various studies of asset markets have shown that traders are capable of learning. In this paper we replace human traders with artificial-intelligent software agents in a simulated stock market. They make predictions about the future, randomly submit their quotes, and transact at certain price. A...

This paper considers optimal decision-making in an environment with changing parameters. The decision maker's beliefs regarding these unknown, time-varying parameters are normal distributions and are updated according to Bayes rule. Optimal decisions involve a certain degree of experimentation....