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Learning with Heterogeneous Expectations in an Evolutionary World

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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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Bibliographic Info

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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Keywords: Adaptive Learning; Evolutionary Dynamics; Heterogeneous Expectations; Multiple Equilibria; Rational Expectations.;

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References

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  2. Marimon, R. & McGraltan, E., 1993. "On Adaptative Learning in Strategic Games," Papers 190, Cambridge - Risk, Information & Quantity Signals.
  3. Guse, Eran A., 2005. "Stability properties for learning with heterogeneous expectations and multiple equilibria," Journal of Economic Dynamics and Control, Elsevier, vol. 29(10), pages 1623-1642, October.
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  20. Sethi, Rajiv, 1996. "Endogenous regime switching in speculative markets," Structural Change and Economic Dynamics, Elsevier, vol. 7(1), pages 99-118, March.
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Cited by:
  1. Guse, Eran, 2004. "Expectational business cycles," Research Discussion Papers 19/2004, Bank of Finland.
  2. Guse, Eran A., 2005. "Stability properties for learning with heterogeneous expectations and multiple equilibria," Journal of Economic Dynamics and Control, Elsevier, vol. 29(10), pages 1623-1642, October.

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