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Complexity, Evolution and Learning: a simple story of heterogeneous expectations and some empirical and experimental validation

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  • Hommes, C.H.

    ()
    (Universiteit van Amsterdam)

Abstract

This note discusses complexity models in economics. A key feature of these models is that agents have heterogeneous expectations, disciplined by adaptive learning and evolutionary selection. Agents adapt their rules based upon past observations and switch between different forecasting heuristics based upon strategy performance. We discuss how these models match empirical facts as well as laboratory experiments with human subjects and how this approach may tame the ``wilderness of bounded rationality''.

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File URL: http://www1.fee.uva.nl/cendef/publications/papers/IPLHommes.pdf
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Bibliographic Info

Paper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 07-07.

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Date of creation: 2007
Date of revision:
Handle: RePEc:ams:ndfwpp:07-07

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Postal: Dept. of Economics and Econometrics, Universiteit van Amsterdam, Roetersstraat 11, NL - 1018 WB Amsterdam, The Netherlands
Phone: + 31 20 525 52 58
Fax: + 31 20 525 52 83
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Web page: http://www.fee.uva.nl/cendef/
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References

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. Anufriev, M. & Hommes, C.H., 2007. "Evolution of Market Heuristics," CeNDEF Working Papers, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance 07-06, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  2. W. Brian Arthur & John H. Holland & Blake LeBaron & Richard Palmer & Paul Taylor, 1996. "Asset Pricing Under Endogenous Expectation in an Artificial Stock Market," Working Papers, Santa Fe Institute 96-12-093, Santa Fe Institute.
  3. repec:att:wimass:9725 is not listed on IDEAS
  4. Leigh Tesfatsion, 2002. "Agent-Based Computational Economics," Computational Economics, EconWPA 0203001, EconWPA, revised 15 Aug 2002.
  5. Cars Hommes & Joep Sonnemans & Jan Tuinstra & Henk van de Velden, 2005. "Coordination of Expectations in Asset Pricing Experiments," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 18(3), pages 955-980.
  6. repec:att:wimass:9530 is not listed on IDEAS
  7. William A. Brock & Cars H. Hommes, 1997. "A Rational Route to Randomness," Econometrica, Econometric Society, Econometric Society, vol. 65(5), pages 1059-1096, September.
  8. Eugene Fama & F. & Kenneth R. French, . "The Equity Premium."," CRSP working papers, Center for Research in Security Prices, Graduate School of Business, University of Chicago 522, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  9. repec:att:wimass:9621 is not listed on IDEAS
  10. Hommes, Cars H., 2006. "Heterogeneous Agent Models in Economics and Finance," Handbook of Computational Economics, Elsevier, in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 23, pages 1109-1186 Elsevier.
  11. Brock, William A. & Hommes, Cars H., 1998. "Heterogeneous beliefs and routes to chaos in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 22(8-9), pages 1235-1274, August.
  12. Tesfatsion, Leigh & Judd, Kenneth L., 2006. "Handbook of Computational Economics, Vol. 2: Agent-Based Computational Economics," Staff General Research Papers, Iowa State University, Department of Economics 10368, Iowa State University, Department of Economics.
  13. LeBaron, Blake & Arthur, W. Brian & Palmer, Richard, 1999. "Time series properties of an artificial stock market," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 23(9-10), pages 1487-1516, September.
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Cited by:
  1. Orlando Gomes, 2012. "Attentiveness cycles: Synchronized behavior and aggregate fluctuations," Revista Brasileira de Economia, FGV/EPGE Escola Brasileira de Economia e Finan├žas, Getulio Vargas Foundation (Brazil), vol. 66(3), pages 271-288, October.

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