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Adaptive vs. Eductive Learning: Theory and Evidence

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  • John Duffy
  • Te Bao

Abstract

Adaptive learning and eductive learning are two widely used ways of modeling learning behavior in macroeconomics. Both approaches yield restrictions on model parameters under which agents are able to learn a rational expectation equilibrium (REE) but these restrictions do not always overlap with one another. In this paper we report on an experiment where we exploit such differences in stability conditions under adaptive and eductive learning to investigate which learning approach provides a better description of the learning behavior of human subjects. Our results suggest that adaptive learning is a better predictor of whether a system converges to REE, while the path by which the system converges appears to be a mixture of both adaptive and eductive learning model predictions.

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File URL: http://www.ewi-ssl.pitt.edu/econ/files/faculty/wp/131223_wp_DuffyJohn_AdaptiveEductive131222.pdf
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Bibliographic Info

Paper provided by University of Pittsburgh, Department of Economics in its series Working Papers with number 518.

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Date of creation: Dec 2013
Date of revision: Dec 2013
Handle: RePEc:pit:wpaper:518

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Keywords: Rational Expectations; Adaptive Learning; Eductive Learning; Experimental Economics.;

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  1. Sonnemans, Joep & Hommes, Cars & Tuinstra, Jan & van de Velden, Henk, 2004. "The instability of a heterogeneous cobweb economy: a strategy experiment on expectation formation," Journal of Economic Behavior & Organization, Elsevier, vol. 54(4), pages 453-481, August.
  2. John Duffy, 2008. "Macroeconomics: A Survey of Laboratory Research," Working Papers, University of Pittsburgh, Department of Economics 334, University of Pittsburgh, Department of Economics, revised Jun 2014.
  3. Offerman, T.J.S. & Potters, J.J.M. & Sonnemans, J., 2002. "Imitation and belief learning in an oligopoly experiment," Open Access publications from Tilburg University urn:nbn:nl:ui:12-91663, Tilburg University.
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  6. Bao, T. & Duffy, J. & Hommes, C.H., 2011. "Learning, Forecasting and Optimizing: an Experimental Study," CeNDEF Working Papers 11-08, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  7. Ernst Fehr & Jean-Robert Tyran, 2005. "Individual Irrationality and Aggregate Outcomes," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 43-66, Fall.
  8. Hommes, C.H. & Wagener, F.O.O., 2009. "Does eductive stability imply evolutionary stability?," CeNDEF Working Papers 09-10, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  9. Bao, T. & Hommes, C.H. & Sonnemans, J. & Tuinstra, J., 2010. "Individual Expectations, Limited Rationality and Aggregate Outcomes," CeNDEF Working Papers 10-07, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  10. Heemeijer, Peter & Hommes, Cars & Sonnemans, Joep & Tuinstra, Jan, 2009. "Price stability and volatility in markets with positive and negative expectations feedback: An experimental investigation," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 33(5), pages 1052-1072, May.
  11. Marimon, Ramon & Sunder, Shyam, 1993. "Indeterminacy of Equilibria in a Hyperinflationary World: Experimental Evidence," Econometrica, Econometric Society, Econometric Society, vol. 61(5), pages 1073-107, September.
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  13. Ariel Rubinstein, 2007. "Instinctive and Cognitive Reasoning: Response Times Study," Levine's Bibliography 321307000000001011, UCLA Department of Economics.
  14. Eizo Akiyama & Nobuyuki Hanaki & Ryuichiro Ishikawa, 2012. "Effect of Uncertainty about Others' Rationality in Experimental Asset Markets: An Experimental Analysis," Working Papers halshs-00793613, HAL.
  15. Joep Sonnemans & Jan Tuinstra, 2008. "Positive Expectations Feedback Experiments and Number Guessing Games as Models of Financial Markets," Tinbergen Institute Discussion Papers 08-076/1, Tinbergen Institute.
  16. Te Bao & Cars Hommes & Joep Sonnemans & Jan Tuinstra, 2012. "Individual Expectations, Limited Rationality and Aggregate Outcomes," Tinbergen Institute Discussion Papers 12-016/1, Tinbergen Institute.
  17. R. Guesnerie, 2002. "Anchoring Economic Predictions in Common Knowledge," Econometrica, Econometric Society, Econometric Society, vol. 70(2), pages 439-480, March.
  18. Eizo Akiyama & Nobuyuki Hanaki & Ryuchiro Ishikawa, 2012. "Effect of uncertainty about others’ rationality in experimental asset markets," AMSE Working Papers 1234, Aix-Marseille School of Economics, Marseille, France.
  19. Sutan, Angela & Willinger, Marc, 2009. "Guessing with negative feedback: An experiment," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 33(5), pages 1123-1133, May.
  20. Beshears, John Leonard & Choi, James J & Fuster, Andreas & Laibson, David I. & Madrian, Brigitte, 2013. "What Goes Up Must Come Down? Experimental Evidence on Intuitive Forecasting," Scholarly Articles 12378032, Harvard University Department of Economics.
  21. Nagel, Rosemarie, 1995. "Unraveling in Guessing Games: An Experimental Study," American Economic Review, American Economic Association, vol. 85(5), pages 1313-26, December.
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Cited by:
  1. repec:hal:wpaper:halshs-00565011 is not listed on IDEAS
  2. George W. Evans & Roger Guesnerie & Bruce Mcgough, 2010. "Eductive stability in real business cycle models," PSE Working Papers halshs-00565011, HAL.

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