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Is more memory in evolutionary selection (de)stabilizing?

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Author Info

  • Hommes, C.H.

    ()
    (University of Amsterdam)

  • Kiseleva, T.

    ()
    (University of Amsterdam)

  • Kuznetsov, Y.

    (Utrecht University)

  • Verbic, M.

    (Institute for Economic Research, Ljubljana, Slovenia)

Abstract

We investigate the effects of memory on the stability of evolutionary selection dynamics based on a multi-nomial logit model in an asset pricing model with heterogeneous beliefs. Whether memory is stabilizing or destabilizing depends in general on three key factors: (1) whether or not the weights on past observations are normalized; (2) the ecology of forecasting rules, in particular the average strength of trend extrapolation and the spread in biased forecasts, and (3) whether or not costs for information gathering of economic fundamentals have to be incurred.

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File URL: http://www1.fee.uva.nl/cendef/publications/papers/HomKisKuzVerMarch2009.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 09-07.

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Date of creation: 2009
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Handle: RePEc:ams:ndfwpp:09-07

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  1. Sergio Da Silva, 2001. "Chaotic Exchange Rate Dynamics Redux," Open Economies Review, Springer, vol. 12(3), pages 281-304, July.
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Cited by:
  1. Diks, Cees & Hommes, Cars & Zeppini, Paolo, 2013. "More memory under evolutionary learning may lead to chaos," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(4), pages 808-812.

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