We introduce a simple equilibrium model of a market for loans, where house- holds lend to firms based on heterogeneous expectations about their loan default probability. Agents select among heterogeneous expectation rules, based upon their relative performance. A small fraction of pessimistic...

This paper presents a fairly general treatment of recursive infinite horizon forward looking optimizing systems on infinite dimensional spatial domains. It includes optimal control, an analysis of local stability of spatially flat optimal steady states and development of techniques to compute...