Learning with Heterogeneous Expectations in an Evolutionary World

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Learning with Heterogeneous Expectations in an Evolutionary World

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Eran Guse

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Eran Guse

Abstract

This paper studies a game theoretic model where agents choose between two updating rules to predict a future endogenous variable. Agents rationally choose between these predictors based on relative performance. Conditions for evolutionary stability and stability under learning are found for the Nash solutions and corresponding parameter equilibria. Stability conditions are contingent upon parameter values and the initial distribution of heterogeneity. However, when the cost of using the more advanced updating rule is sufficiently large, all agents will asymptotically use the more parsimonious, or Minimum State Variable (MSV), updating rule.

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 99.

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Date of creation: 11 Aug 2004
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Handle: RePEc:sce:scecf4:99

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Paper
- Guse, E., 2005. "Learning with Heterogeneous Expectations in an Evolutionary World," Cambridge Working Papers in Economics 0547, Faculty of Economics, University of Cambridge. [Downloadable!]

Find related papers by JEL classification:
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation

This paper has been announced in the following NEP Reports:

NEP-ALL-2004-07-26 (All new papers)
NEP-EVO-2004-07-26 (Evolutionary Economics)

References listed on IDEAS
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.:

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Other versions:
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Other versions:
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Other versions:
- Kaushik Mitra & Seppo Honkapohja, 2004. "Learning Stability in Economies with Heterogenous Agents," Royal Holloway, University of London: Discussion Papers in Economics 04/17, Department of Economics, Royal Holloway University of London, revised Jul 2004. [Downloadable!]
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repec:cup:macdyn:v:2:y:1998:i:3:p:287-321 is not listed on IDEAS
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Other versions:
- George W. Evans & Garey Ramey, 1995. "Calculation, Adaptation, and Rational Expectations," University of California at San Diego, Economics Working Paper Series 95-10r, Department of Economics, UC San Diego.
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Other versions:
- Marimon, R. & McGraltan, E., 1993. "On Adaptative Learning in Strategic Games," Papers 190, Cambridge - Risk, Information & Quantity Signals.
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Full references

Cited by:
(explanations, 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.)

Eran Guse, 2004. "Expectational Business Cycles," Money Macro and Finance (MMF) Research Group Conference 2004 97, Money Macro and Finance Research Group. [Downloadable!]
Other versions:
- Guse, Eran, 2004. "Expectational business cycles," Research Discussion Papers 19/2004, Bank of Finland. [Downloadable!]
Orlando Gomes, . "Volatility, Heterogeneous Agents and Chaos," The Electronic Journal of Evolutionary Modeling and Economic Dynamics, IFReDE - Université Montesquieu Bordeaux IV. [Downloadable!]
Other versions:
- Orlando Gomes, 2004. "Volatility, Heterogeneous Agents and Chaos," GE, Growth, Math methods 0409010, EconWPA. [Downloadable!]

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