Rational Routes to Randomness
AbstractWe introduce the concept of Adaptively Rational Equilibrium (A.R.E.) where agents base decisions upon predictions of future values of endogenous variables whose actual values are determined by equilibration. Predictors are chosen from a finite set. Each predictor is a function of past observations and has a performance measure attached to it which is publically available. Agents use a discrete choice model and make a rational choice concerning the predictor based upon the performance measure. This results in a dynamics across predictor choice which is coupled to the dynamics of the endogenous variables. When there is at least one `stabilizing' predictor (e.g. rational or long memory expectations) driving the endogenous variable toward its steady state value and at least one `destabilizing' predictor (e.g. adaptive or short memory expectations) driving the endogenous variable away from its steady state value, then the adaptive rational equilibrium dynamics can be very complicated and cycles and chaos can arise. The irregularity of the equilibrium time paths is explained by the existence of a homoclinic orbit and its associated complicated dynamical phenomena, when the intensity of choice between predictors is high. Thus local instability and global complicated dynamics may be a feature of a fully rational notion of equilibrium.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Wisconsin Madison - Social Systems in its series Working papers with number 9506.
Length: 73 pages
Date of creation: 1995
Date of revision:
Contact details of provider:
Postal: UNIVERSITY OF WISCONSIN MADISON, SOCIAL SYSTEMS RESEARCH INSTITUTE(S.S.R.I.), MADISON WISCONSIN 53706 U.S.A.
DECISION MAKING; ECONOMIC MODELS;
Other versions of this item:
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.:
- Marimon, Ramon, 1993.
"Adaptive learning, evolutionary dynamics and equilibrium selection in games,"
European Economic Review,
Elsevier, vol. 37(2-3), pages 603-611, April.
- Ramon Marimon, 1993. "Adaptive learning, evolutionary dynamics and equilibrium selection in games," Economics Working Papers 23, Department of Economics and Business, Universitat Pompeu Fabra.
- William A. Brock & Blake D. LeBaron, 1995.
"A Dynamic Structural Model for Stock Return Volatility and Trading Volume,"
NBER Working Papers
4988, National Bureau of Economic Research, Inc.
- Brock, William A & LeBaron, Blake D, 1996. "A Dynamic Structural Model for Stock Return Volatility and Trading Volume," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 94-110, February.
- Sethi, Rajiv, 1996. "Endogenous regime switching in speculative markets," Structural Change and Economic Dynamics, Elsevier, vol. 7(1), pages 99-118, March.
- Pintus, P. & Sands, D. & de Vilder, R., 1998.
"On the Transition from Local Regular to Global Iregular Fluctuations,"
9818, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor..
- Pintus, Patrick & Sands, Duncan & de Vilder, Robin, 2000. "On the transition from local regular to global irregular fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 247-272, February.
- Pintus, Patrick & Sands, Ducan & De Vilder, Robin, 1996. "On the transition from local regular to global irregular fluctuations," CEPREMAP Working Papers (Couverture Orange) 9617, CEPREMAP.
- P. Pintus & D. Sands & R. de Vilder, 1998. "On the transition from local regular to global irregular fluctuations," THEMA Working Papers 98-18, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- Patrick Pintus & Ducan Sands & Robin De Vilder, 1998. "On the Transition from Local Regular to Global Irregular Fluctuations," Working Papers 98-54, Centre de Recherche en Economie et Statistique.
- Evans, George W & Ramey, Garey, 1992. "Expectation Calculation and Macroeconomic Dynamics," American Economic Review, American Economic Association, vol. 82(1), pages 207-24, March.
- Townsend, Robert M, 1983. "Forecasting the Forecasts of Others," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 546-88, August.
- Hommes, Cars H., 1994. "Dynamics of the cobweb model with adaptive expectations and nonlinear supply and demand," Journal of Economic Behavior & Organization, Elsevier, vol. 24(3), pages 315-335, August.
- Carl Chiarella, 1992. "The Dynamics of Speculative Behaviour," Working Paper Series 13, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
- Jean-Michel Grandmont, 1997.
"Expectations Formation and Stability of Large Socioeconomic Systems,"
97-27, Centre de Recherche en Economie et Statistique.
- Jean-Michel Grandmont, 1998. "Expectations Formation and Stability of Large Socioeconomic Systems," Econometrica, Econometric Society, vol. 66(4), pages 741-782, July.
- GRANDMONT, Jean-Michel, 1997. "Expectations formation and stability of large socioeconomic systems," CORE Discussion Papers 1997088, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Grandmont, Jean-Michel, 1994. "Expectations formation and stability of large socioeconomic systems," CEPREMAP Working Papers (Couverture Orange) 9424, CEPREMAP.
- Benhabib, Jess & Day, Richard H., 1982. "A characterization of erratic dynamics in, the overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, vol. 4(1), pages 37-55, November.
- Grandmont, Jean-Michel, 1985.
"On Endogenous Competitive Business Cycles,"
Econometric Society, vol. 53(5), pages 995-1045, September.
- Kurz, Mordecai, 1994. "On Rational Belief Equilibria," Economic Theory, Springer, vol. 4(6), pages 859-76, October.
- de Vilder, Robin, 1996. "Complicated Endogenous Business Cycles under Gross Substitutability," Journal of Economic Theory, Elsevier, vol. 71(2), pages 416-442, November.
- Blume, Lawrence & Easley, David, 1992. "Evolution and market behavior," Journal of Economic Theory, Elsevier, vol. 58(1), pages 9-40, October.
- Antonio Cabrales & Takeo Hoshi, 1993.
"Heterogeneous beliefs, wealth accumulation and asset price dynamics,"
Economics Working Papers
55, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 1993.
- Cabrales, Antonio & Hoshi, Takeo, 1996. "Heterogeneous beliefs, wealth accumulation, and asset price dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 20(6-7), pages 1073-1100.
- Marcet, Albert & Sargent, Thomas J, 1989. "Convergence of Least-Squares Learning in Environments with Hidden State Variables and Private Information," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1306-22, December.
- Lux, Thomas, 1995. "Herd Behaviour, Bubbles and Crashes," Economic Journal, Royal Economic Society, vol. 105(431), pages 881-96, July.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ailsenne Sumwalt).
If references are entirely missing, you can add them using this form.