Endogenous price bubbles in a multi-agent system of the housing market

• Main Authors: Kouwenberg, R, Zwinkels, R. C.
• Other Authors: Mahidol University. College of Management
• Format: Article
• Language: English
• Published: 2016
• Subjects: Endogenous; Price bubbles; Multi-agent system; Housing market; Open Access article
• Online Access: https://repository.li.mahidol.ac.th/handle/123456789/3107
• Institution: Mahidol University

Economic history shows a large number of boom-bust cycles, with the U.S. real estate market as one of the latest examples. Classical economic models have not been able to provide a full explanation for this type of market dynamics. Therefore, we analyze home prices in the U.S. using an alternative approach, a multi-agent complex system. Instead of the classical assumptions of agent rationality and market efficiency, agents in the model are heterogeneous, adaptive, and boundedly rational. We estimate the multi-agent system with historical house prices for the U.S. market. The model fits the data well and a deterministic version of the model can endogenously produce boom-and-bust cycles on the basis of the estimated coefficients. This implies that trading between agents themselves can create major price swings in absence of fundamental news.