The behavioural finance literature attributes the persistent market misvaluation observed in real data to the presence of deviations from rational thinking of the actors involved. Cognitive biases and the use of simple heuristics can be described using expected utility maximising agents that...

Social dilemmas are among the most puzzling issues in the biological and social sciences. Extensive theoretical efforts have been made in various realms such as economics, biology, mathematics, and even physics to figure out solution mechanisms to the dilemma in recent decades. Although...

In a complete market for short-lived assets, we investigate long run wealth-driven selection on a general class of investment rules that depend on endogenously determined current and past prices. We find that market instability, leading to asset mis-pricing and informational efficiencies, is a...

We provide simple examples to illustrate how wealth-driven selection works in asset markets. Our examples deliver both good and bad news. The good news is that if individual assets demands are expressed as a fractions of wealth to be invested in each asset, e.g. because traders maximize an...

We develop an adaptive learning game to rethink efficient markets. We use the stochastically stable state of this game, which is a mixed Nash equilibrium, to form an adaptive expectation model that provides an estimate of the confidence interval for prices on the next day. The estimate is most...

We provide a discipline for belief formation through an evolutionary process which favors beliefs leading to higher utility levels at the Walrasian equilibrium. We show that such an evolutionary process converges to the Nash equilibrium in a game of strategic beliefs choices. The asymptotic...

We introduce an evolutionary equilibrium asset pricing model with heterogeneous agents who can either act as brokers or hedge funds. Hedge funds can trade on margin, taking short or (leveraged) long positions in the assets. Brokers provide asset loans and credit to margin traders. In any...