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Generalised Fading Memory Learning in a Cobweb Model: some evidence

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Author Info
Domenico Colucci
Vincenzo Valori

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Abstract

We develop a learning rule that generalises the well known fading memory learning in the sense that the weights attached to the available time series data are not constant and are updated in light of the prediction error(s). The underlying idea is that confidence in the available data will be low when large errors have been realized (e.g. in times of higher volatility) and vice versa. A class of functional forms compatible with this idea is analysed in the context of a standard Cobweb model with boundedly rational agents. We study the problem of convergence to the perfect foresight equilibrium (both local and global) and give conditions that ensure the coexistence of different attractors. We refer to both experimental and numerical evidence to establish the possible range of application of the generalised fading memory learning

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 272.

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Date of creation: 11 Aug 2004
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Handle: RePEc:sce:scecf4:272

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Related research
Keywords: bounded rationality; learning dynamics; fading memory; nonlinear cobweb model.;

Find related papers by JEL classification:
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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References listed on IDEAS
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  1. Domenico Colucci & V. Valori, 2001. "Error learning behaviour and stability revisited," CeNDEF Workshop Papers, January 2001 1A.1, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
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  2. Cars Hommes & Gerhard Sorger, 1997. "Consistent Expectations Equilibria," Tinbergen Institute Discussion Papers 97-051/1, Tinbergen Institute.
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  3. Lovell, Michael C, 1986. "Tests of the Rational Expectations Hypothesis," American Economic Review, American Economic Association, vol. 76(1), pages 110-24, March. [Downloadable!] (restricted)
  4. repec:cup:macdyn:v:2:y:1998:i:3:p:287-321 is not listed on IDEAS
  5. C.H. Hommes & J.H. Sonnemans & J. Tuinstra & H. van de Velde, 2003. "Learning in Cobweb Experiments," Tinbergen Institute Discussion Papers 03-020/1, Tinbergen Institute. [Downloadable!]
  6. Carl Chiarella & Xue-Zhong He & Peiyuan Zhu, 2003. "Fading Memory Learning in the Cobweb Model with Risk Averse Heterogeneous Producers," Research Paper Series 108, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
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  7. Hey, John D., 1994. "Expectations formation: Rational or adaptive or ...?," Journal of Economic Behavior & Organization, Elsevier, vol. 25(3), pages 329-349, December. [Downloadable!] (restricted)
  8. Potzelberger, Klaus & Sogner, Leopold, 2003. "Stochastic equilibrium: learning by exponential smoothing," Journal of Economic Dynamics and Control, Elsevier, vol. 27(10), pages 1743-1770, August. [Downloadable!] (restricted)
  9. Kirman, A., 1997. "Interaction and Markets," G.R.E.Q.A.M. 97a02, Universite Aix-Marseille III.
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  10. 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. [Downloadable!] (restricted)
  11. Hugh Kelley & Daniel Friedman, 2002. "Learning to Forecast Price," Economic Inquiry, Oxford University Press, vol. 40(4), pages 556-573, October.
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