Does eductive stability imply evolutionary stability?
This note presents a simple example of a model in which the unique rational expectations (RE) steady state equilibrium is eductively stable in the sense of Guesnerie (2002), but where evolutionary learning, as introduced in Brock and Hommes (1997), does not necessarily converge to the RE steady state price. The example is a Muthian cobweb model where producers have heterogeneous expectations and select forecasting strategies based upon recent realized profits. By means of a simple three types example we show that a locally stable RE fundamental steady state may co-exists with a locally stable two-cycle. We also study the Muthian model with a large number of different producer types, and investigate conditions under which an evolutionary adaptive learning process based upon recent realized profits enforces global convergence to the stable RE steady state and when persistent periodic price fluctuations can arise.
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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- William A. Brock & Cars H. Hommes, 1997.
"A Rational Route to Randomness,"
Econometric Society, vol. 65(5), pages 1059-1096, September.
- Brock, W.A. & Hommes, C.H. & Wagener, F.O.O., 2002.
"Evolutionary dynamics in markets with many trader types,"
CeNDEF Working Papers
02-10, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Brock, William A. & Hommes, Cars H. & Wagener, Florian O. O., 2005. "Evolutionary dynamics in markets with many trader types," Journal of Mathematical Economics, Elsevier, vol. 41(1-2), pages 7-42, February.
- Diks, Cees & van der Weide, Roy, 2005.
"Herding, a-synchronous updating and heterogeneity in memory in a CBS,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 29(4), pages 741-763, April.
- Cees Diks & Roy van der Weide, 2003. "Herding, A-synchronous Updating and Heterogeneity in Memory in a CBS," Tinbergen Institute Discussion Papers 03-103/1, Tinbergen Institute.
- Diks, C.G.H. & Weide, R. van der, 2003. "Herding, A-synchronous Updating and Heterogeneity in Memory in a CBS," CeNDEF Working Papers 03-06, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Guesnerie, Roger, 1992.
"An Exploration of the Eductive Justifications of the Rational-Expectations Hypothesis,"
American Economic Review,
American Economic Association, vol. 82(5), pages 1254-78, December.
- Guesnerie, R., 1989. "An Exploration of the Eductive Justifications of the Rational Expectations Hypotbesis," DELTA Working Papers 89-24, DELTA (Ecole normale supérieure).
- Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November.
- Anufriev, M. & Assenza, T. & Hommes, C.H. & Massaro, D., 2008. "Interest Rate Rules with Heterogeneous Expectations," CeNDEF Working Papers 08-08, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Cars Hommes & Florian Wagener, 2008.
"Complex Evolutionary Systems in Behavioral Finance,"
Tinbergen Institute Discussion Papers
08-054/1, Tinbergen Institute.
- Hommes, C.H. & Wagener, F.O.O., 2008. "Complex evolutionary systems in behavioral finance," CeNDEF Working Papers 08-05, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- 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.
- Brock, W.A. & Hommes, C.H., 1996. "Hetergeneous Beliefs and Routes to Chaos in a Simple Asset Pricing Model," Working papers 9621, Wisconsin Madison - Social Systems.
- Binmore, Ken, 1987. "Modeling Rational Players: Part I," Economics and Philosophy, Cambridge University Press, vol. 3(02), pages 179-214, October.
- R. Guesnerie, 2002.
"Anchoring Economic Predictions in Common Knowledge,"
Econometric Society, vol. 70(2), pages 439-480, March.
- Guesnerie, R., 1999. "Anchoring Economic Predictions in Common Knowledge," DELTA Working Papers 1999-06, DELTA (Ecole normale supérieure).
When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:75:y:2010:i:1:p:25-39. 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: (Shamier, Wendy)
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.