Limited Rationality and Strategic Complements: The Implications for Macroeconomics
This paper considers the implications of heterogeneity in information-processing abilities for macroeconomic models that exhibit "strategic complements." The latter is the same concept that has received much attention in the recent macro literature under the headings "Keynesian coordination problems" and "positive trading externalities." The authors consider environments in which agents vary in terms of their ability to form expectations, and ask whether it is the "sophisticated" agents or the "naive" agents who have a disproportionately large effect on macroeconomic equilibrium. They find that if macroeconomic interaction exhibits strategic complementarity, then it is the naive agents who have a disproportionate impact. Copyright 1989, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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Volume (Year): 104 (1989)
Issue (Month): 3 (August)
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