| Adaptive Learning in Financial Markets | |
| Bryan R. Routledge, Carnegie Mellon University | |
| Review of Financial Studies, Winter 1999 vol 12, 5, page 1165-1202. | |
| ABSTRACT We investigate adaptive or evolutionary learning in a repeated version of the Grossman and Stiglitz (1980) model. We demonstrate that any process that is a monotonic selection dynamic will converge to the rational expectations asset demands if the proportion of informed traders is fixed. We also show that these learning processes have a unique asymptotically stable fixed point at the Grossman-Stiglitz (GS) equilibrium. The robustness of learning to noisy experimentation is studied using Binmore and Samuelson's (1995) deterministic drift approximation. Conditions on economic and learning process parameters for adaptive learning to lead to the GS rational expectations equilibrium are presented. | |
| DOWNLOAD: Get paper from RFS Web site | |
| NOTES: Genetic Algorithm Learning to Choose and Use Information is a related paper that uses the same economy to investigate a genetic algorithm as a model of learning. | |
| Data updated: 10.09.2002 11:00 |
Updated at: 06.15.2006 11:01
© Routledge 2006