Advanced Search
MyIDEAS: Login to save this paper or follow this series

Interactive Learning and Behavioral Sunspots

Contents:

Author Info

  • Gaetano Gaballo

    ()

Registered author(s):

    Abstract

    This paper shows how to extend the adaptive learning approach to a truly behavioral uncertainty problem. It investigates the simplest case of a first order self-referential model where two agents have a non-negligible impact on aggregate expectations. Unlike the standard setting, agents are not boundedly rational in that they acknowledge their own influence on output and they are perfectly informed about the exogenous determinants of the economy. Nevertheless no common knowledge is assumed; agents are epistemically isolated and they can only have noisy perceptions of the other agent's simultaneous expectation. In order to have consistent forecasts, each agent has to learn how the other agent's expectations will affect the economy. I prove there exist two types of learnable equilibria: (a) a unique rational expectation equilibrium (REE) and (b) at least one behavioral sunspot equilibrium (BSE). The latter may arise because the learning dynamics can generate the self-fulfilling reciprocal belief that the other agent is irrationally exuberant. Finally, numerical simulations illustrate how an unpredictable switch from the REE to a BSE may occur endogenously when both coexist and are learnable.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.depfid.unisi.it/images/pdf/text1008.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Department of Economic Policy, Finance and Development (DEPFID), University of Siena in its series Department of Economic Policy, Finance and Development (DEPFID) University of Siena with number 1008.

    as in new window
    Length:
    Date of creation: Sep 2008
    Date of revision:
    Handle: RePEc:usi:depfid:1008

    Contact details of provider:
    Postal: Piazza San Francesco 7, 53100 Siena
    Web page: http://www.depfid.unisi.it/
    More information through EDIRC

    Related research

    Keywords: excess volatility; behavioral uncertainty; intrinsic heterogeneity; statistical learning; structural change.;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    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.:
    as in new window
    1. George Evans & William Branch, 2003. "Intrinsic Heterogeneity in Expectation Formation," Computing in Economics and Finance 2003 312, Society for Computational Economics.
    2. George W. Evans & Seppo Honkapohja & Noah Williams, 2005. "Generalized Stochastic Gradient Learning," NBER Technical Working Papers 0317, National Bureau of Economic Research, Inc.
    3. Guesnerie, R., 1989. "An Exploration of the Eductive Justifications of the Rational Expectations Hypotbesis," DELTA Working Papers 89-24, DELTA (Ecole normale supérieure).
    4. Berardi, Michele, 2007. "Heterogeneity and misspecifications in learning," Journal of Economic Dynamics and Control, Elsevier, vol. 31(10), pages 3203-3227, October.
    5. Seppo Honkapohja & Kaushik Mitra, 2006. "Learning Stability in Economies with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 284-309, April.
    6. Roger Guesnerie, 2005. "Assessing Rational Expectations 2: "Eductive" Stability in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262072580, December.
    7. 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.
    8. Chryssi Giannitsarou, 2003. "Heterogeneous Learning," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 885-906, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:usi:depfid:1008. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carlo Zappia).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.