Asset Market and Consumption Dynamics with Adaptive Investors¤

This paper is the ...rst attempt of applying the Easley Rustichini (Econometrica, 1999, 5) Replicator dynamics framework to simple one-period security markets, with a ...nite set of actions for traders. In two and three action environments, the examples developed here show that even with very simple (objective) state spaces and straightforward Replicator Dynamics, prices may not necessarily converge almost surely to a unique competitive equilibrium equilibrium price. The examples presented here show that the long run equilibrium price distribution are non-degenerate but its variance is usually low.