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Learning From The Expectations Of Others

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  • GRANATO, JIM
  • GUSE, ERAN A.
  • WONG, M. C. SUNNY

Abstract

This paper explores the equilibrium properties of boundedly rational heterogeneous agents under adaptive learning. In a modified cobweb model with a Stackelberg framework, there is an asymmetric information diffusion process from leading to following firms. It turns out that the conditions for at least one learnable equilibrium are similar to those under homogeneous expectations. However, the introduction of information diffusion leads to the possibility of multiple equilibria and can expand the parameter space of potential learnable equilibria. In addition, the inability to correctly interpret expectations will cause a “boomerang effect†on the forecasts and forecast efficiency of the leading firms. The leading firms' mean square forecast error can be larger than that of following firms if the proportion of following firms is sufficiently large.

Suggested Citation

  • Granato, Jim & Guse, Eran A. & Wong, M. C. Sunny, 2008. "Learning From The Expectations Of Others," Macroeconomic Dynamics, Cambridge University Press, vol. 12(3), pages 345-377, June.
  • Handle: RePEc:cup:macdyn:v:12:y:2008:i:03:p:345-377_07
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    Cited by:

    1. Michele Berardi, 2009. "Monetary Policy with Heterogeneous and Misspecified Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(1), pages 79-100, February.
    2. Muto, Ichiro, 2011. "Monetary policy and learning from the central bank's forecast," Journal of Economic Dynamics and Control, Elsevier, vol. 35(1), pages 52-66, January.
    3. Eran Guse & Sunny M.C. Wong, 2011. "Adaptive Learning and Information Diffusion," Working Papers 11-04, Department of Economics, West Virginia University.
    4. Cone, Thomas E., 2006. "Learning with limited bandwidth and attention to others' learning," Economics Letters, Elsevier, vol. 93(1), pages 132-136, October.
    5. Jim Granato & Melody Lo & M. C. Sunny Wong, 2010. "A Framework for Unifying Formal and Empirical Analysis," American Journal of Political Science, John Wiley & Sons, vol. 54(3), pages 783-797, July.

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    More about this item

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - 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: Models and Applications

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