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Dynamics of beliefs and learning under aL-processes -- the heterogeneous case

  • Chiarella, Carl
  • He, Xue-Zhong

This paper studies a class of models in which agents' expectations influence the actual dynamics while the expectations themselves are the outcome of some recursive processes with bounded memory. Under the assumptions of heterogeneous expectations (or beliefs) and that the agents update their expectations by recursive L- and general aL-processes, the dynamics of the resulting expectations and learning schemes are analyzed. It is shown that the dynamics of the system, including stability, instability and bifurcation, are affected differently by the recursive processes. The cobweb model with a simple heterogeneous expectation scheme is employed as an example to illustrate the stability results, the various types of bifurcations and the routes to complicated price dynamics. In particular, the double edged effect of heterogeneity on the dynamics of the model is demonstrated.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 27 (2003)
Issue (Month): 3 (January)
Pages: 503-531

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Handle: RePEc:eee:dyncon:v:27:y:2003:i:3:p:503-531
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  1. William A. Brock & Cars H. Hommes, 1997. "A Rational Route to Randomness," Econometrica, Econometric Society, vol. 65(5), pages 1059-1096, September.
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  5. repec:att:wimass:9621 is not listed on IDEAS
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  11. Carl Chiarella & Xue-Zhong He, 2001. "Dynamics of Beliefs and Learning Under aL Processes - The Homogeneous Case," Research Paper Series 53, Quantitative Finance Research Centre, University of Technology, Sydney.
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  16. repec:att:wimass:9706 is not listed on IDEAS
  17. Brock, William A. & Hommes, Cars H., 1998. "Heterogeneous beliefs and routes to chaos in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1235-1274, August.
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