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Learning with Expert Advice

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  • Krisztina Molnár

Abstract

Surveys of inflation forecasts show that expectations combine forward-looking and backward-looking elements. This contradicts conventional wisdom: In the presence of rational agents, adaptive agents would be driven out of the market. In our paper, we rationalize this finding in an equilibrium framework. Our model has two types of agents, one having rational expectations and the other using adaptive learning. The proportion of these agents in the population evolves according to their past forecasting performance. We show that even an underparameterized learning algorithm survives competition with rational expectations. (JEL: C62, D83, D84) (c) 2007 by the European Economic Association.

Suggested Citation

  • Krisztina Molnár, 2007. "Learning with Expert Advice," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 420-432, 04-05.
    • Handle: RePEc:tpr:jeurec:v:5:y:2007:i:2-3:p:420-432
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    Cited by:

    1. Molnár, Krisztina & Santoro, Sergio, 2014. "Optimal monetary policy when agents are learning," European Economic Review, Elsevier, vol. 66(C), pages 39-62.
    2. Mele, Antonio & Molnár, Krisztina & Santoro, Sergio, 2020. "On the perils of stabilizing prices when agents are learning," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 339-353.
    3. Audzei, Volha & Slobodyan, Sergey, 2022. "Sparse restricted perceptions equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 139(C).

    More about this item

    JEL classification:

    • 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

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