Cobweb Dynamics under Bounded Rationality

Cars Hommes

No 99-05, CeNDEF Working Papers from Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance

Abstract: Price fluctuations under adaptive learning in renewable resource markets such as fisheries are examined. Optimal fishery management with logistic fish population growth implies a backward-bending, discounted supply curve for bioeconomic equilibrium sustained yield. Higher discount rates bend supply backwards more to generate multiple steady state rational expectations equilibria. Under bounded rationality adaptive learning of a linear forecasting rule generates steady state, 2-cycle as well as chaotic consistent expectations equilibria (CEE), which are self-fulfilling in sample average and autocorrelations. The possibility of "learning to believe in chaos" is robust and even enhanced by dynamic noise.

Keywords: Expectations; adaptive learning; heterogeneity; nonlinear dynamics. (search for similar items in EconPapers)
Date: 1999
New Economics Papers: this item is included in nep-evo, nep-mac and nep-mic
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ams:ndfwpp:99-05

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