Network Averaging: a technique for determining a proxy for the dynamics of networks
AbstractThe main aim of this paper is to introduce the network averaging technique. This technique is introduced because accurately determining the structure of real networks can be difficult and the network averaging technique provides a proxy for real networks. A second aim is to introduce the adaptive interactive expectations (AIE) model, which uses a ‘pressure to change profit expectations index’ to replace the utility curve maximising agent concept. The AIE model has an interactive expectations network, which is difficult to determine, so suitable to illustrate network averaging. The AIE model is tested against the Dun and Bradstreet Profit Expectations Survey. The paper finds network averaging improves the predictive performance of AIE over its benchmarks: the rational expectations hypothesis and the adaptive expectations model. The network averaging technique could be adapted to other situations where there are endogenous effects acting through difficult to measure networks. The AIE model could be readily applied to other forms of expectations and as a replacement for the utility curve maximising agent. Finally, in this paper AIE models profit expectations, which are an important issue in their own right because they affect investment decisions and whether one business will extend credit to another business.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 38026.
Date of creation: 06 Nov 2009
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Networks; interactive; adaptive; model averaging; profit;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Institutional; Evolutionary
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- B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
- B53 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Austrian
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.:
- Mark Bowden & Stuart McDonald, 2006. "Social interaction, herd behaviour and the formation of agent expectations," Computing in Economics and Finance 2006 178, Society for Computational Economics.
- Herbert Dawid & Michael Neugart, 2011. "Agent-based Models for Economic Policy Design," Eastern Economic Journal, Palgrave Macmillan, vol. 37(1), pages 44-50.
- John Foster & Burkhard Flieth, 2002. "Interactive expectations," Journal of Evolutionary Economics, Springer, vol. 12(4), pages 375-395.
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