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Heterogeneous expectations, adaptive learning, and evolutionary dynamics

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  • Guse, Eran A.

Abstract

This paper presents a linear self-referential macroeconomic model with the possibility of multiple equilibria where agents have the choice of using one of two forecasting models (one of minimum state variable form and the other of sunspot form) to form expectations of current and future prices. Endogenous predictor selection is modeled as an evolutionary game where individuals choose among the forecasting models based on relative performance. Some Nash solutions are not relevant as they are not stable under evolutionary or adaptive learning. Finally, it is shown that the sunspot equilibrium is fragile against temporary shocks to information costs.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 74 (2010)
Issue (Month): 1-2 (May)
Pages: 42-57

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Handle: RePEc:eee:jeborg:v:74:y:2010:i:1-2:p:42-57

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Web page: http://www.elsevier.com/locate/jebo

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Keywords: Adaptive learning Evolutionary dynamics Heterogeneous expectations Multiple equilibria Rational expectations;

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References

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  1. Eran Guse, 2007. "Learning in a Misspecified Multivariate Self-Referential Linear Stochastic Model," Money Macro and Finance (MMF) Research Group Conference 2006 71, Money Macro and Finance Research Group.
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Citations

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Cited by:
  1. William R. Parke & George A. Waters, 2011. "On the Evolutionary Stability of Rational Expectations," Working Paper Series 20111002, Illinois State University, Department of Economics.
  2. Joel Carton & Eran A. Guse, 2010. "Replicator Dynamic Learning in Muth's Model of Price Movements," Working Papers 10-18, Department of Economics, West Virginia University.
  3. Hommes, C.H., 2010. "The Heterogeneous Expectations Hypothesis: Some Evidence from the Lab," CeNDEF Working Papers 10-06, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  4. Berardi, Michele, 2011. "Fundamentalists vs. chartists: Learning and predictor choice dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 35(5), pages 776-792, May.
  5. Carravetta, Francesco & Sorge, Marco M., 2013. "Model reference adaptive expectations in Markov-switching economies," Economic Modelling, Elsevier, vol. 32(C), pages 551-559.
  6. Alberto Locarno, 2012. "Monetary policy in a model with misspecified, heterogeneous and ever-changing expectations," Temi di discussione (Economic working papers) 888, Bank of Italy, Economic Research and International Relations Area.
  7. Guse, Eran A., 2014. "Adaptive learning, endogenous uncertainty, and asymmetric dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 355-373.
  8. Bofinger, Peter & Debes, Sebastian & Gareis, Johannes & Mayer, Eric, 2013. "Monetary policy transmission in a model with animal spirits and house price booms and busts," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2862-2881.
  9. Goldbaum, David & Panchenko, Valentyn, 2010. "Learning and adaptation's impact on market efficiency," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 635-653, December.
  10. Bovi, Maurizio, 2013. "Are the representative agent’s beliefs based on efficient econometric models?," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 633-648.

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