Cobweb Dynamics under Bounded Rationality
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.
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- William A. Brock & Cars H. Hommes, 1997.
"A Rational Route to Randomness,"
Econometric Society, vol. 65(5), pages 1059-1096, September.
- James Bullard, 1991.
1991-004, Federal Reserve Bank of St. Louis.
- B hm, Volker & Wenzelburger, Jan, 1999. "Expectations, Forecasting, And Perfect Foresight," Macroeconomic Dynamics, Cambridge University Press, vol. 3(02), pages 167-186, June.
- Chiarella, Carl, 1988. "The cobweb model: Its instability and the onset of chaos," Economic Modelling, Elsevier, vol. 5(4), pages 377-384, October.
- Bray, Margaret M & Savin, Nathan E, 1986. "Rational Expectations Equilibria, Learning, and Model Specification," Econometrica, Econometric Society, vol. 54(5), pages 1129-60, September.
- Arifovic, Jasmina, 1994. "Genetic algorithm learning and the cobweb model," Journal of Economic Dynamics and Control, Elsevier, vol. 18(1), pages 3-28, January.
- 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.
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