Drift criteria for persistence of discrete stochastic processes on the line

Market Selection and Learning Under Model Misspecification

“…For example, the assumption of bounded aggregate endowment eliminates the selection effect of risk preferences that has been shown to exist in continuous time and with CRRA traders by Yan (2008). The analysis in discrete-time economies performed by Bottazzi and Dindo (2022) confirms that an unbounded aggregate endowment can have a nontrivial selection effect in our framework: depending on the assumptions on risk preferences and how the aggregate endowment grows, one may have different scenarios, ranging from risk preferences playing no role to becoming the only things that matter. Along the same lines, investigating how misspecification affects selection under recursive preferences (Easley and Yang, 2015;Dindo, 2019;Borovička, 2020), incomplete markets (Sandroni, 2005;Blume and Easley, 2006), or differential financial constraints (Guerdjikova and Quiggin, 2019) may all be interesting avenues for future contributions.…”

“…The two approaches can lead to identical dynamics. In fact, they can be linked by means of effective beliefs, seeBottazzi et al (2018),Dindo (2019),Giachini (2021).…”