Essays on Price Dynamics and Market Selection

This paper analyzes and characterizes the dynamics of wealth-share and equilibrium price in a stochastic general equilibrium model with heterogeneous consumers. The characterization enables a comparison between probabilistic learning and price evolution, revealing that prices incorporate "sparse" information efficiently. Results on wealth-share are obtained by comparing traders' optimal investment-consumption plans against their prices. This novel approach extends recent results in the literature by providing a condition that is necessary as well as sufficient for a trader to vanish. The results are applied to survival in iid, survival in large economies, and survival of traders that follow strategies commonly observed in real markets