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Cobweb Dynamics under Bounded Rationality

Author

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  • Hommes, C.H.

    () (Universiteit van Amsterdam)

Abstract

Price fluctuations under adaptive learning in renewable resource markets such as fisheries are examined. Optimal fishery management with logistic fish population growth implies a backward-bending, discounted supply curve for bioeconomic equilibrium sustained yield. Higher discount rates bend supply backwards more to generate multiple steady state rational expectations equilibria. Under bounded rationality adaptive learning of a linear forecasting rule generates steady state, 2-cycle as well as chaotic consistent expectations equilibria (CEE), which are self-fulfilling in sample average and autocorrelations. The possibility of "learning to believe in chaos" is robust and even enhanced by dynamic noise.

Suggested Citation

  • Hommes, C.H., 1999. "Cobweb Dynamics under Bounded Rationality," CeNDEF Working Papers 99-05, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  • Handle: RePEc:ams:ndfwpp:99-05
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    References listed on IDEAS

    as
    1. Bullard James, 1994. "Learning Equilibria," Journal of Economic Theory, Elsevier, vol. 64(2), pages 468-485, December.
    2. Hommes, Cars H., 1991. "Adaptive learning and roads to chaos : The case of the cobweb," Economics Letters, Elsevier, vol. 36(2), pages 127-132, June.
    3. Chiarella, Carl, 1988. "The cobweb model: Its instability and the onset of chaos," Economic Modelling, Elsevier, vol. 5(4), pages 377-384, October.
    4. Arifovic, Jasmina, 1994. "Genetic algorithm learning and the cobweb model," Journal of Economic Dynamics and Control, Elsevier, vol. 18(1), pages 3-28, January.
    5. William A. Brock & Cars H. Hommes, 1997. "A Rational Route to Randomness," Econometrica, Econometric Society, vol. 65(5), pages 1059-1096, September.
    6. B hm, Volker & Wenzelburger, Jan, 1999. "Expectations, Forecasting, And Perfect Foresight," Macroeconomic Dynamics, Cambridge University Press, vol. 3(02), pages 167-186, June.
    7. Bray, Margaret M & Savin, Nathan E, 1986. "Rational Expectations Equilibria, Learning, and Model Specification," Econometrica, Econometric Society, vol. 54(5), pages 1129-1160, September.
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    Cited by:

    1. Lasselle, Laurence & Svizzero, Serge & Tisdell, Clem, 2005. "Stability And Cycles In A Cobweb Model With Heterogeneous Expectations," Macroeconomic Dynamics, Cambridge University Press, vol. 9(05), pages 630-650, November.
    2. Sonnemans, Joep & Hommes, Cars & Tuinstra, Jan & van de Velden, Henk, 2004. "The instability of a heterogeneous cobweb economy: a strategy experiment on expectation formation," Journal of Economic Behavior & Organization, Elsevier, vol. 54(4), pages 453-481, August.
    3. Laurence Lasselle & Serge Svizzero & Clem Tisdell, 2001. "Heterogeneous Beliefs and Instability," Discussion Paper Series, Department of Economics 200111, Department of Economics, University of St. Andrews.
    4. Kőhegyi, Gergely & Stépán, Gábor, 2003. "A versenyzői gazdaság stabilitása késleltetett áralkalmazkodás mellett
      [The stability of a competitive economy with delayed price adjustment]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 112-135.

    More about this item

    Keywords

    Expectations; adaptive learning; heterogeneity; nonlinear dynamics.;

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