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Rational expectations (may) lead to complex dynamics in a Muthian cobweb model with heterogeneous agents

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  • Naimzada, Ahmad
  • Pireddu, Marina

Abstract

Starting from a Muthian cobweb model, we extend the profit-based evolutionary setting in Hommes and Wagener (2010) by assuming that, in addition to pessimistic, optimistic and unbiased fundamentalists, the market is populated by rational producers, which correctly anticipate the next period price. Thanks to their introduction, we find that, differently from the framework in Hommes and Wagener (2010), the map governing the dynamics is no more monotonically decreasing. Hence, if on the one hand adding rational agents enlarges the local stability region of the steady state, on the other hand their consideration opens the door to complex dynamic outcomes, characterized by chaotic attractors and rich multistability phenomena, that we investigate along the paper.

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  • Naimzada, Ahmad & Pireddu, Marina, 2020. "Rational expectations (may) lead to complex dynamics in a Muthian cobweb model with heterogeneous agents," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 415-432.
    • Handle: RePEc:eee:jeborg:v:177:y:2020:i:c:p:415-432
    DOI: 10.1016/j.jebo.2020.06.024
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    1. Hommes, Cars H., 1991. "Adaptive learning and roads to chaos : The case of the cobweb," Economics Letters, Elsevier, vol. 36(2), pages 127-132, June.
    2. Hommes, Cars & Wagener, Florian, 2010. "Does eductive stability imply evolutionary stability?," Journal of Economic Behavior & Organization, Elsevier, vol. 75(1), pages 25-39, July.
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    5. Naimzada, Ahmad & Pireddu, Marina, 2020. "Eductive stability may not imply evolutionary stability in the presence of information costs," Economics Letters, Elsevier, vol. 186(C).
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    Cited by:

    1. Berardi, Michele, 2022. "Beliefs asymmetry and price stability in a cobweb model," Journal of Economic Behavior & Organization, Elsevier, vol. 203(C), pages 401-415.
    2. Ahmad Naimzada & Marina Pireddu, 2021. "The opposite effect of rational expectations and differentiated information costs for heterogeneous fundamentalists on the stability of an evolutive Muthian cobweb model," Working Papers 460, University of Milano-Bicocca, Department of Economics, revised Dec 2021.

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    More about this item

    Keywords

    Muthian cobweb model; Evolutionary learning; Heterogeneous agents; Rational expectations; Complex dynamics;
    All these keywords.

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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