Learning to deal with repeated shocks under strategic complementarity: An experiment

Muhammed Bulutay, Camille Cornand and Adam Zylbersztejn ()
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Adam Zylbersztejn: Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France

No 2003, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: Experimental evidence shows that the rational expectations hypothesis fails to characterize the path to equilibrium after an exogenous shock when actions are strategic complements. Under identical shocks, however, repetition allows adaptive learning, so that inertia in adjustment should fade away with experience. If this finding proves to be robust, inertia in adjustment may be irrelevant among experienced agents. The conjecture in the literature is that inertia would still persist, perhaps indefinitely, in the presence of real-world complications such as nonidentical shocks. Herein, we empirically test the conjecture that the inertia in adjustment is more persistent if the shocks are nonidentical. For both identical and nonidentical shocks, we find persistent inertia and similar patterns of adjustment that can be explained by backward-looking expectation rules. A reformulation of naïve expectations with similarity-based learning approach is found to have a higher predictive power than rational and trend-following rules.

Keywords: Strategic complementarities; expectations; adjustment speed; similarity-based learning; guessing games; heuristics switching (search for similar items in EconPapers)
JEL-codes: C72 C73 D83 D84 D91 G41 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-exp and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Learning to deal with repeated shocks under strategic complementarity: An experiment (2022)
Working Paper: Learning to deal with repeated shocks under strategic complementarity: An experiment (2022)
Working Paper: Learning to deal with repeated shocks under strategic complementarity: An experiment (2020)
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