Abstract
This paper studies the equilibrium consumption under external habit formation in a large population of agents. We first formulate problems under two types of conventional habit formation preferences, namely linear and multiplicative external habit formation, in a mean field game framework. In a log-normal market model with the asset specialization, we characterize one mean field equilibrium in analytical form in each problem, allowing us to understand some quantitative properties of the equilibrium strategy and conclude some financial implications caused by consumption habits from a mean-field perspective. In each problem with n agents, we construct an approximate Nash equilibrium for the n-player game using the obtained mean field equilibrium when n is sufficiently large. The explicit convergence order in each problem can also be obtained.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
