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

Giovanni Dosi, Mauro Napoletano, Andrea Roventini, Joseph Stiglitz and Tania Treibich

LEM Papers Series from Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy

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 and coordination hurdles. In these circumstances, we find that neither individual nor macroeconomic dynamics improve when agents replace myopic expectations with less naie learning rules. In fact, more sophisticated, e.g. recursive least squares (RLS) expectations produce less accurate individual forecasts and also considerably worsen the performance of the economy. Finally, we experiment with agents that adjust simply to technological shocks, and we show that individual and aggregate performances dramatically degrade. Our results suggest that fast and frugal robust heuristics are not a second-best option: rather they are "rational" in macroeconomic environments with heterogeneous, interacting agents and changing "fundamentals".

Keywords: complexity; expectations; heterogeneity; heuristics; learning; agent-based model; computational economics (search for similar items in EconPapers)
Date: 2017-12-07
New Economics Papers: this item is included in nep-cmp, nep-exp, nep-hme and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

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Related works:
Journal Article: RATIONAL HEURISTICS? EXPECTATIONS AND BEHAVIORS IN EVOLVING ECONOMIES WITH HETEROGENEOUS INTERACTING AGENTS (2020)
Working Paper: Rational heuristics? Expectations and behaviors in evolving economies with heterogeneous interacting agents (2020)
Working Paper: Rational heuristics? Expectations and behaviors in evolving economies with heterogeneous interacting agents (2020)
Working Paper: Rational Heuristics? Expectations and Behaviors in Evolving Economies with Heterogeneous Interacting Agents (2020)
Working Paper: Rational Heuristics ? Expectations and behaviours in evolving economies with heterogeneous interacting agents (2017)
Working Paper: Rational Heuristics ? Expectations and behaviors in Evolving Economies with Heterogeneous interacting agents (2017)
Working Paper: Rational Heuristics ? Expectations and behaviors in Evolving Economies with Heterogeneous interacting agents (2017)
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