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Using genetic algorithms to model the evolution of heterogenous beliefs

  • James Bullard
  • John Duffy

We study a general equilibrium system where agents have heterogeneous beliefs concerning realizations of possible outcomes. The actual outcomes feed back into beliefs thus creating a complicated nonlinear system. Beliefs are updated via a genetic algorithm learning process which we interpret as representing communication among agents in the economy. We are able to illustrate a simple principle: genetic algorithms can be implemented so that they represent pure learning effects (i.e., beliefs updating based on realizations of endogenous variables in an environment with heterogeneous beliefs). Agents optimally solve their maximization problem at each date given their beliefs at each date. We report the results of a set of computational experiments in which we find that our population of artificial adaptive agents is usually able to coordinate their beliefs so as to achieve the Pareto superior rational expectations equilibrium of the model. Citation Copyright 1999 by Kluwer Academic Publishers.

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 550.

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Date of creation: 08 Dec 2010
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Handle: RePEc:cla:levarc:550
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  1. Arifovic, Jasmina, 1994. "Genetic algorithm learning and the cobweb model," Journal of Economic Dynamics and Control, Elsevier, vol. 18(1), pages 3-28, January.
  2. Marimon, Ramon & Sunder, Shyam, 1994. "Expectations and Learning under Alternative Monetary Regimes: An Experimental Approach," Economic Theory, Springer, vol. 4(1), pages 131-62, January.
  3. Bullard, James & Duffy, John, 1998. "A model of learning and emulation with artificial adaptive agents," Journal of Economic Dynamics and Control, Elsevier, vol. 22(2), pages 179-207, February.
  4. James Bullard & John Duffy, 1995. "On learning and the stability of cycles," Working Papers 1995-006, Federal Reserve Bank of St. Louis.
  5. Arifovic, Jasmina, 1995. "Genetic algorithms and inflationary economies," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 219-243, August.
  6. Routledge, Bryan R, 1999. "Adaptive Learning in Financial Markets," Review of Financial Studies, Society for Financial Studies, vol. 12(5), pages 1165-1202.
  7. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  8. Arifovic, Jasmina, 1996. "The Behavior of the Exchange Rate in the Genetic Algorithm and Experimental Economies," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 510-41, June.
  9. Arifovic, Jasmina & Eaton, Curtis, 1995. "Coordination via Genetic Learning," Computational Economics, Society for Computational Economics, vol. 8(3), pages 181-203, August.
  10. Bullard James, 1994. "Learning Equilibria," Journal of Economic Theory, Elsevier, vol. 64(2), pages 468-485, December.
  11. Arifovic, Jasmina & Bullard, James & Duffy, John, 1997. " The Transition from Stagnation to Growth: An Adaptive Learning Approach," Journal of Economic Growth, Springer, vol. 2(2), pages 185-209, July.
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