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Expectations Formation and Stability of Large Socioeconomic Systems

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  • Jean-Michel Grandmont

Abstract

This paper attempts to identify some of the basic reasons why adaptive learning may or may not lead to stability and convergence to self-fulfilling expectations. It is shown that, if agents are somewhat uncertain about the local stability of the system, the learning dynamics is locally divergent. On the other hand, if agents are fairly sure of the local stability of the system, one may indeed get local stability. This 'uncertainty principle' does show up in a wide variety of contexts.

Suggested Citation

  • Jean-Michel Grandmont, 1998. "Expectations Formation and Stability of Large Socioeconomic Systems," Econometrica, Econometric Society, vol. 66(4), pages 741-782, July.
  • Handle: RePEc:ecm:emetrp:v:66:y:1998:i:4:p:741-782
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    More about this item

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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