Our main in­te­rests lie in the fol­lo­wing sub­fields of Ge­ne­ral Equi­li­bri­um Theo­ry and Ma­the­ma­ti­cal Fi­nan­ce:

He­te­ro­ge­ne­ous Agents (with ap­p­li­ca­ti­ons to Asset Pri­cing)

While in the abs­tract theo­ry in­di­vi­du­als in an eco­no­my are al­lo­wed to have he­te­ro­ge­ne­ous pre­fe­ren­ces (e.g. with re­spect to risk or delay), and while in em­pi­ri­cal stu­dies in­de­ed pre­fe­rence he­te­ro­gen­ei­ty has been well do­cu­men­ted, in ap­p­lied re­se­arch this he­te­ro­gen­ei­ty is not often ad­dres­sed. Work on the im­pli­ca­ti­ons of he­te­ro­gen­ei­ty of risk-​preferences on port­fo­lio hol­dings and asset pri­ces in­clu­de Hara, Huang, and Kuz­mics (2007, Jour­nal of Eco­no­mic Theo­ry) and Hara, Huang, and Kuz­mics (2011, Jour­nal of Eco­no­mic Theo­ry). He­te­ro­gen­ei­ty plays also arole for the term struc­tu­re of in­te­rest rates, a topic Frank Rie­del stu­di­ed in his the­sis (Im­per­fect In­for­ma­ti­on and In­ves­tor He­te­ro­gen­ei­ty in the Bond Mar­ket, Phy­si­ca, 1998, He­te­ro­ge­ne­ous Time Pre­fe­ren­ces and Humps in the Yield Curve: The Pre­fer­red Ha­bi­tat Theo­ry Re­vi­si­ted, Eu­ropean Jour­nal of Fi­nan­ce, 2004). He also stu­di­ed he­te­ro­ge­ne­ous ex­pec­ta­ti­ons (Arrow-​Debreu Equi­li­bria With Asym­pto­ti­cal­ly He­te­ro­ge­ne­ous Ex­pec­ta­ti­ons Exist, Eco­no­mic Theo­ry, 2003).

Other-​Regarding Pre­fe­ren­ces

In the past there were a lot of dis­cus­sions on the new mo­dels of "other-​regarding pre­fe­ren­ces" put for­ward in many be­ha­vio­ral pa­pers. While these pa­ra­metric pre­fe­ren­ces cer­tain­ly do not re­sol­ve the is­su­es rai­sed by the ex­pe­ri­ments, it is cer­tain­ly true that hu­mans tend to be in­flu­en­ced by the well-​being or the con­sump­ti­on choices of others. Paul Heid­hu­es (now ESMT Ber­lin) and Frank Rie­del thus set out to study this ques­ti­on in a re­a­son­ab­ly ge­ne­ral set­ting. This led to the in­sight that mar­kets make peop­le look sel­fish, even if they are not. In con­trast to what is fre­quent­ly to be found in news­pa­pers, mar­kets thus do not make peop­le sel­fish, but they ra­ther in­du­ce a be­ha­vi­or that is in­dis­tin­guis­ha­ble from sel­fish be­ha­vi­or. For ma­te­ri­al wealth, mar­kets re­main a good in­sti­tu­ti­on, but peop­le are not ne­ces­sa­ri­ly happy about the ine­qual out­co­me. In such so­cie­ties, the se­cond wel­fa­re theo­rem does not hold true. As a con­se­quence, so­cial wel­fa­re re­dis­tri­bu­ti­on is ge­ne­ral­ly ac­cep­ted, to give an examp­le. As some other peop­le were working on si­mi­lar ques­ti­ons, we joi­ned three pa­pers to one, which fi­nal­ly ap­peared in the Re­view of Eco­no­mic Stu­dies (2011).

Equi­li­bri­um Founda­ti­ons for Fi­nan­cial Mar­kets and Asset Pri­cing

Fi­nan­ce needs sound eco­no­mic founda­ti­ons. An im­portant part of our re­se­arch is con­cer­ned with the ge­ne­ral equi­li­bri­um founda­ti­ons of fi­nan­cial mar­kets. Pu­bli­ca­ti­ons in­clu­de Exis­tence of Arrow?Rad­ner Equi­li­bri­um with En­do­ge­nous­ly Com­ple­te Mar­kets under In­com­ple­te In­for­ma­ti­on, Jour­nal of Eco­no­mic Theo­ry, 2001, by Frank Rie­del, and Op­ti­mal Con­sump­ti­on Choice under Un­cer­tain­ty with In­ter­tem­po­ral Sub­sti­tu­ti­on, An­nals of Ap­p­lied Pro­ba­bi­li­ty, 2001, with Peter Bank. With Fre­de­rik Herz­berg, we have re­cent­ly in­ves­ti­ga­ted po­ten­ti­al­ly com­ple­te mar­kets in con­ti­nuous time (Exis­tence of Fi­nan­cial Equi­li­bria in Con­ti­nuous Time with Po­ten­ti­al­ly Com­ple­te Mar­kets, Jour­nal of Ma­the­ma­ti­cal Eco­no­mics 2013).