Heterogeneous expectations, adaptive learning, and evolutionary dynamics
AbstractThis 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 InfoArticle provided by Elsevier in its journal Journal of Economic Behavior & Organization.
Volume (Year): 74 (2010)
Issue (Month): 1-2 (May)
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Web page: http://www.elsevier.com/locate/jebo
Adaptive learning Evolutionary dynamics Heterogeneous expectations Multiple equilibria Rational expectations;
Other versions of this item:
- Eran A. Guse, 2008. "Heterogeneous Expectations, Adaptive Learning, and Evolutionary Dynamics," Working Papers 09-01, Department of Economics, West Virginia University.
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
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