Cobweb Dynamics under Bounded Rationality
AbstractPrice fluctuations under adaptive learning in renewable resource markets such as fisheries are examined. Optimal fishery management with logistic fish population growth implies a backward-bending, discounted supply curve for bioeconomic equilibrium sustained yield. Higher discount rates bend supply backwards more to generate multiple steady state rational expectations equilibria. Under bounded rationality adaptive learning of a linear forecasting rule generates steady state, 2-cycle as well as chaotic consistent expectations equilibria (CEE), which are self-fulfilling in sample average and autocorrelations. The possibility of "learning to believe in chaos" is robust and even enhanced by dynamic noise.
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Bibliographic InfoPaper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 99-05.
Date of creation: 1999
Date of revision:
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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
Web page: http://www.fee.uva.nl/cendef/
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Expectations; adaptive learning; heterogeneity; nonlinear dynamics.;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-12-04 (All new papers)
- NEP-EVO-2001-12-04 (Evolutionary Economics)
- NEP-MAC-2001-12-04 (Macroeconomics)
- NEP-MIC-2001-12-04 (Microeconomics)
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- Sonnemans, J. & Hommes, C.H. & Tuinstra, J. & van de Velden, H., 1999.
"The Instability of a Heterogeneous Cobweb economy: a Strategy Experiment on Expectation Formation,"
CeNDEF Working Papers
99-06, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
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[The stability of a competitive economy with delayed price adjustment]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 112-135.
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