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The Economy as an Evolving Complex System, IIICurrent Perspectives and Future Directions$
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Lawrence E. Blume and Steven N. Durlauf

Print publication date: 2005

Print ISBN-13: 9780195162592

Published to Oxford Scholarship Online: October 2011

DOI: 10.1093/acprof:oso/9780195162592.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 23 April 2021

Rationality and Selection in Asset Markets

Rationality and Selection in Asset Markets

(p.49) Rationality and Selection in Asset Markets
The Economy as an Evolving Complex System, III

Lawrence E. Blume

David Easley

Oxford University Press

This chapter examines the implications of trader rationality for the price behavior of financial assets. It argues that rationality imposes few constraints on asset prices. Nonetheless, the market as a whole may in effect learn by transferring wealth across traders with different beliefs, and this market learning may have long-run asset price implications. This finding complements the contribution of Farmer et al. by arguing that it is the interaction mechanism rather than specific agent behaviors that drive the general features of asset price processes.

Keywords:   trader rationality, financial assets, Farmer, asset price processes

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