Abstract

A new explanation of kurtosis in asset price behavior is proposed involving flare attractors. Such attractors depend on chaotic fundamentals driving subsystems which trigger nonlinearly response functions each with a switching mechanism representing the changing of agents from stabilizing to destabilizing behavior. Heterogeneous agent types are shown by a set of these response functions that are interlinked. With a larger number of agent types system behavior resembles that of many financial markets. Such a model is consistent with newer approaches relying upon evolutionary learning mechanisms with heterogeneous agents as well as models depending on fractal characteristics.