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Boundedly versus Procedurally Rational Expectations

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Abstract

Economists who have relied on the rational expectations hypothesis are now seeking to demonstrate that rational expectiations equilibria can emerge in models with agents who are artificually intelligent. Agents' intelligence is represented by genetic algorithms. However, these algorithms misrepresent current understanding of human cognition as well as well known and long standing evidence from business history and the history of technology. A well validated representation of human cognition is implemented in SDML, a logic-based programming language which is optimized for representations of interactions among agents. Within that software environment, a model of a transition economy was developed with three production sectors and a household sector. The numerical outputs from that model are broadly in accord with the statistical evidence from the Russian economy. The model itself was developed explicitly to incorporate qualitatively specified characteristics of entrepreneurial behaviour in that economy. Unlike conventional economic models, transactions are negotiated and effected explicitly - there are no unspecified or underspecified "markets".

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  • Scott Moss, 1997. "Boundedly versus Procedurally Rational Expectations," Discussion Papers 97-30, Manchester Metropolitan University, Centre for Policy Modelling.
    • Handle: RePEc:wuk:mcpmdp:9730
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    References listed on IDEAS

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    1. Arthur, W.B. & Holland, J.H. & LeBaron, B. & Palmer, R. & Tayler, P., 1996. "Asset Pricing Under Endogenous Expectations in an Artificial Stock Market," Working papers 9625, Wisconsin Madison - Social Systems.
    2. Sent, Esther-Mirjam, 1997. "Sargent versus Simon: Bounded Rationality Unbound," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 21(3), pages 323-338, May.
    3. Bruce Edmonds & Scott Moss & Steve Wallis, 1996. "Logic, Reasoning and A Programming Language for Simulating Economic and Business Processes with Artificially Intelligent Agents," Discussion Papers 009, Manchester Metropolitan University, Centre for Policy Modelling.
    4. W. Brian Arthur & Paul Tayler, "undated". "Asset Pricing Under Endogenous Expectations in an Artificial Stock Market," Computing in Economics and Finance 1997 57, Society for Computational Economics.
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