We propose a method for modelling economic systems in which outcomes depend locally on the predictions that agents make of other agents. We develop populations games in which each agent adaptively searches for a good model of its environment. We demonstrate that such systems can exhibit persistent dynamics, cyclic oscillations between low and high complexity states, and other complex, yet endogenous, phenomena. We propose that these `adaptively rational' agents as a natural extension of rational expectations, suitable when mutual consistency is not realistic. We discuss the connections between our work and the programs of bounded rationality, evolutionary game theory, and models motivated by statistical mechanics.
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|Date of creation:||Aug 1996|
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- Blume Lawrence E., 1993.
"The Statistical Mechanics of Strategic Interaction,"
Games and Economic Behavior,
Elsevier, vol. 5(3), pages 387-424, July.
- L. Blume, 2010. "The Statistical Mechanics of Strategic Interaction," Levine's Working Paper Archive 488, David K. Levine.
- Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, vol. 59(2), pages 488-93, May.
- Ellison, Glenn, 1993.
"Learning, Local Interaction, and Coordination,"
Econometric Society, vol. 61(5), pages 1047-71, September.
- Brock, W.A. & Durlauf, S.N., 1995.
"Discrete Choice with Social Interactions I: Theory,"
9521, Wisconsin Madison - Social Systems.
- William A. Brock & Steven N. Durlauf, 1995. "Discrete Choice with Social Interactions I: Theory," NBER Working Papers 5291, National Bureau of Economic Research, Inc.
- William A. Brock & Steven N. Durlauf, 1995. "Discrete Choice with Social Interactions I: Theory," Working Papers 95-10-084, Santa Fe Institute.
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