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On the hidden hazards of adaptive behavior

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  • Huang, Weihong

Abstract

Adaptive behavior has been observed in almost all aspects of real-world. One of the main advantages of acting adaptively is its stabilizing effect on dynamic equilibrium, associated with which are three favorable features: (a) non-destabilizing characteristics, (b) low-speed effectiveness and (c) the convexity of the stabilization regime in terms of the adaptive parameter. It is shown either in theory or by counter-examples that these advantages may not be preserved if the adaptive mechanism is applied to multi-dimensional processes. The necessary and sufficient conditions for the relevant phenomena are provided for two-dimensional dynamic processes with application to duopolistic dynamics. Our findings not only help to clarify hidden misconceptions and prevent potential abuse of adaptive mechanisms, but also illustrate the possible pitfalls arising from generalizing well-known characteristics of low dimensional and/or homogeneous agent models to high-dimensional and heterogenous agent models.

Suggested Citation

  • Huang, Weihong, 2010. "On the hidden hazards of adaptive behavior," Journal of Economic Dynamics and Control, Elsevier, vol. 34(8), pages 1442-1455, August.
    • Handle: RePEc:eee:dyncon:v:34:y:2010:i:8:p:1442-1455
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Hidden Hazards of Adaptive Behavior...
      by David R. Pugh in beyond microfoundations on 2010-08-18 19:31:00

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