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Learning, hypothesis testing, and rational-expectations equilibrium

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  • Norman, Thomas W.L.

Abstract

Foster and Young (2003) provide a model of learning by hypothesis testing that spends almost all of the time approximating Nash equilibria of a repeated game. Here I extend this learning model to a macroeconomic setting, where agents' decisions are informed by hypotheses they hold regarding the economy. They periodically test these hypotheses against observed data, and replace them if they fail. Under certain conditions, agents who learn in this way spend a large fraction of the time approximating rational-expectations equilibria.

Suggested Citation

  • Norman, Thomas W.L., 2015. "Learning, hypothesis testing, and rational-expectations equilibrium," Games and Economic Behavior, Elsevier, vol. 90(C), pages 93-105.
    • Handle: RePEc:eee:gamebe:v:90:y:2015:i:c:p:93-105
    DOI: 10.1016/j.geb.2014.12.006
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    More about this item

    Keywords

    Rational-expectations equilibrium; Learning; Hypothesis testing;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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