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Kinetic exchange models have been successful in explaining the shape of the income/wealth distribution in the economies. However, such models usually make some ad-hoc assumptions when it comes to determining the savings factor. Here, we…

In general it is not clear which kind of information is supposed to be used for calculating the fair value of a contingent claim. Even if the information is specified, it is not guaranteed that the fair value is uniquely determined by the…

We develop a market model in which products generate state-dependent potential hidden charges. Firms differ in their ability to realize this potential. Unlike firms, consumers do not observe the state. They try to infer hidden charges from…

In the present paper a model of a market consisting of real and financial interacting sectors is studied. Agents populating the stock market are assumed to be not able to observe the true underlying fundamental, and their beliefs are biased…

Applied macroeconomists frequently use impulse response estimators motivated by linear models. We study whether the estimands of such procedures have a causal interpretation when the true data generating process is in fact nonlinear. We…

We describe a simple model for speculative trading based on adaptive behavior of economic agents.The adaptive behavior is expressed through a feedback mechanism for changing agents' stock-to-bond ratios, depending on the past performance of…

Economists often estimate economic models on data and use the point estimates as a stand-in for the truth when studying the model's implications for optimal decision-making. This practice ignores model ambiguity, exposes the decision…

We compare the predictions of the stationary Kyle model, a microfounded multi-step linear price impact model in which market prices forecast fundamentals through information encoded in the order flow, with those of the propagator model, a…

Financial event studies, ubiquitous in finance research, typically use linear factor models with known factors to estimate abnormal returns and identify causal effects of information events. This paper demonstrates that when factor models…

This paper is an original attempt to understand the foundations of economic reasoning. It endeavors to rigorously define the relationship between subjective interpretations and objective valuations of such interpretations in the context of…

The fluctuations in nonequilibrium systems are under intense theoretical and experimental investigation. Topical ``fluctuation relations'' describe symmetries of the statistical properties of certain observables, in a variety of models and…

We consider a class of generalized capital asset pricing models in continuous time with a finite number of agents and tradable securities. The securities may not be sufficient to span all sources of uncertainty. If the agents have…

Auctions are markets with strict regulations governing the information available to traders in the market and the possible actions they can take. Since well designed auctions achieve desirable economic outcomes, they have been widely used…

Many studies assume stock prices follow a random process known as geometric Brownian motion. Although approximately correct, this model fails to explain the frequent occurrence of extreme price movements, such as stock market crashes. Using…

Proceeding from the concept of rational expectations, a new dynamic model of supply and demand in a single market with one supplier, one buyer, and one kind of commodity is developed. Unlike the cob-web dynamic theories with adaptive…

The objective of this work is the investigation of complexity, asymmetry, stochasticity and non-linearity of the financial and economic systems by using the tools of statistical mechanics and information theory. More precisely, this thesis…

Standard approaches to the theory of financial markets are based on equilibrium and efficiency. Here we develop an alternative based on concepts and methods developed by biologists, in which the wealth invested in a financial strategy is…

Motivated by the prevalence of prediction problems in the economy, we study markets in which firms sell models to a consumer to help improve their prediction. Firms decide whether to enter, choose models to train on their data, and set…

Following a long tradition of physicists who have noticed that the Ising model provides a general background to build realistic models of social interactions, we study a model of financial price dynamics resulting from the collective…

How do we assign value to economic transactions? To answer this question, we must consider whether the value of objects is inherent, is a product of social interaction, or involves other mechanisms. Economic theory predicts that there is an…