Instability in the cobweb model under the BNN dynamic
The cobweb model where firms choose between rational and naive forecasting strategies has a 2-cycle when the slope of supply is greater than the slope of demand for a number of different dynamics describing the evolution of strategy choices. This paper proves that the 2-cycle is exponentially unstable under the learning dynamic of Brown et al. (1950). Issues arising in the analysis of piecewise smooth discrete time maps are discussed.
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- William A. Brock & Cars H. Hommes, 1997.
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- Goeree, Jacob K. & Hommes, Cars H., 2000. "Heterogeneous beliefs and the non-linear cobweb model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(5-7), pages 761-798, June.
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