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Heterogeneous expectations, adaptive learning, and evolutionary dynamics

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  • Guse, Eran A.
Abstract
This paper presents a linear self-referential macroeconomic model with the possibility of multiple equilibria where agents have the choice of using one of two forecasting models (one of minimum state variable form and the other of sunspot form) to form expectations of current and future prices. Endogenous predictor selection is modeled as an evolutionary game where individuals choose among the forecasting models based on relative performance. Some Nash solutions are not relevant as they are not stable under evolutionary or adaptive learning. Finally, it is shown that the sunspot equilibrium is fragile against temporary shocks to information costs.

Suggested Citation

  • Guse, Eran A., 2010. "Heterogeneous expectations, adaptive learning, and evolutionary dynamics," Journal of Economic Behavior & Organization, Elsevier, vol. 74(1-2), pages 42-57, May.
    • Handle: RePEc:eee:jeborg:v:74:y:2010:i:1-2:p:42-57
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    References listed on IDEAS

    as
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    Cited by:

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    2. Hommes, Cars, 2011. "The heterogeneous expectations hypothesis: Some evidence from the lab," Journal of Economic Dynamics and Control, Elsevier, vol. 35(1), pages 1-24, January.
    3. Berardi, Michele, 2011. "Fundamentalists vs. chartists: Learning and predictor choice dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 35(5), pages 776-792, May.
    4. Cars Hommes, 2010. "The heterogeneous expectations hypothesis: some evidence from the lab," Post-Print hal-00753041, HAL.
    5. Chakrabarti, Anindya S. & Lahkar, Ratul, 2017. "Productivity dispersion and output fluctuations: An evolutionary model," Journal of Economic Behavior & Organization, Elsevier, vol. 137(C), pages 339-360.
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    7. Carravetta, Francesco & Sorge, Marco M., 2013. "Model reference adaptive expectations in Markov-switching economies," Economic Modelling, Elsevier, vol. 32(C), pages 551-559.
    8. Berardi, Michele, 2015. "On the fragility of sunspot equilibria under learning and evolutionary dynamics," Journal of Economic Behavior & Organization, Elsevier, vol. 112(C), pages 251-265.
    9. Xing Gao & Daniel Ladley, 2022. "Noise trading and market stability," The European Journal of Finance, Taylor & Francis Journals, vol. 28(13-15), pages 1283-1301, October.
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    11. Bofinger, Peter & Debes, Sebastian & Gareis, Johannes & Mayer, Eric, 2013. "Monetary policy transmission in a model with animal spirits and house price booms and busts," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2862-2881.
    12. Michele Berardi, 2021. "Discrete beliefs space and equilibrium: a cautionary note," Journal of Evolutionary Economics, Springer, vol. 31(2), pages 505-532, April.
    13. Guse, Eran A., 2014. "Adaptive learning, endogenous uncertainty, and asymmetric dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 355-373.
    14. Bovi, Maurizio, 2013. "Are the representative agent’s beliefs based on efficient econometric models?," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 633-648.
    15. Michele Berardi, 2015. "Expectations formation under adaptive learning and evolutionary dynamics," Centre for Growth and Business Cycle Research Discussion Paper Series 206, Economics, The University of Manchester.
    16. Michele Berardi, 2011. "Heterogeneous sunspots solutions under learning and replicator dynamics," Centre for Growth and Business Cycle Research Discussion Paper Series 160, Economics, The University of Manchester.
    17. Goldbaum, David, 2017. "Divergent Behavior in Markets with Idiosyncratic Private Information," Review of Behavioral Economics, now publishers, vol. 4(2), pages 181-213, September.
    18. Debes, Sebastian & Gareis, Johannes & Mayer, Eric & Rüth, Sebastian, 2014. "Towards a consumer sentiment channel of monetary policy," W.E.P. - Würzburg Economic Papers 91, University of Würzburg, Department of Economics.
    19. Przemysław Włodarczyk, 2016. "Modele reprezentatywnych podmiotów gospodarczych jako narzędzie analizy w nowej syntezie neoklasycznej," Bank i Kredyt, Narodowy Bank Polski, vol. 47(6), pages 553-584.

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