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Rational Heuristics? Expectations and Behaviors in Evolving Economies with Heterogeneous Interacting Agents

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  • Giovanni Dosi
  • Mauro Napoletano
  • Andrea Roventini
  • Joseph E. Stiglitz
  • Tania Treibich

Abstract

We analyze the individual and macroeconomic impacts of heterogeneous expectations and action rules within an agent-based model populated by heterogeneous, interacting firms. Agents have to cope with a complex evolving economy characterized by deep uncertainty resulting from technical change, imperfect information, coordination hurdles and structural breaks. In these circumstances, we find that neither individual nor macroeconomic dynamics improve when agents replace myopic expectations with less naïve learning rules. Our results suggest that fast and frugal robust heuristics may not be a second-best option but rather “rational” responses in complex and changing macroeconomic environments.

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  • Giovanni Dosi & Mauro Napoletano & Andrea Roventini & Joseph E. Stiglitz & Tania Treibich, 2020. "Rational Heuristics? Expectations and Behaviors in Evolving Economies with Heterogeneous Interacting Agents," NBER Working Papers 26922, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:26922
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    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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