This paper formalizes the idea that more hedging instruments may destabilize markets when traders are heterogeneous and adapt their behavior according to experience based reinforcement learning. We investigate three different economic settings, a simple mean-variance asset pricing model, a...

We introduce a framework to analyze the interaction of boundedly rational heterogeneous agents repeatedly playing a participation game with negative feedback. We assume that agents use different behavioral rules prescribing how to play the game conditionally on the outcome of previous rounds. We...

We introduce a framework to analyze the interaction of boundedly rational heterogeneous agents repeatedly playing a participation game with negative feedback. We assume that agents use different behavioral rules prescribing how to play the game conditionally on the outcome of previous rounds. We...

Within a financial market where a risk-free bond and a long-lived risky asset are exchanged by investors with heterogeneous trading rules, we assume that the investors most exposed to the risky asset are subject to joint liquidation needs. The latter encompass a risk whenever the market impact...

Within a financial market where a risk-free bond and a long-lived risky asset are exchanged by investors with heterogeneous trading rules, we assume that the investors most exposed to the risky asset are subject to joint liquidation needs. The latter encompass a risk whenever the market impact...

We introduce a framework to analyze the interaction of boundedly rational heterogeneous agents repeatedly playing a participation game with negative feedback. We assume that agents use different behavioral rules prescribing how to play the game conditionally on the outcome of previous rounds. We...

This paper surveys work on dynamic heterogeneous agent models (HAMs) in economics and finance. Emphasis is given to simple models that, at least to some extent, are tractable by analytic methods in combination with computational tools. Most of these models are behavioral models with boundedly...