Macroeconomies as Constructively Rational Games

Ekaterina Sinitskaya and Leigh Tesfatsion (tesfatsi@iastate.edu)

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: Real-world decision-makers are forced to be locally constructive, in the sense that their actions are constrained by the interaction networks, limited information, and computational capabilities at their disposal. This study poses the following question: Suppose utility-seeking consumers and profit-seeking firms in an otherwise standard dynamic macroeconomic model are required to be locally constructive decision-makers, unaided by the external imposition of global coordination conditions. What combinations of locally constructive decision rules result in good macroeconomic performance relative to a social planner benchmark model, and what are the game-theoretic properties of these decision-rule combinations? We begin our investigation of this question by specifying locally constructive decision rules for the consumers and firms that range from simple reinforcement learning to sophisticated adaptive dynamic programming algorithms. We then use computational experiments to explore macroeconomic performance under alternative decision-rule combinations. A key finding is that simpler rules can outperform more sophisticated rules, but that forward-looking behavior coupled with a relatively long memory permitting past observations to inform current decision-making is critical for good performance.

Keywords: Learning; Macroeconomics; agent-based; game; stochastic optimization (search for similar items in EconPapers)
JEL-codes: B4 C6 C7 E2 (search for similar items in EconPapers)
Date: 2014-08-22
New Economics Papers: this item is included in nep-cdm, nep-cmp, nep-gth, nep-mac, nep-mic and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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http://www2.econ.iastate.edu/tesfatsi/MacroConstru ... tskayaTesfatsion.pdf (application/pdf)

Related works:
Journal Article: Macroeconomies as constructively rational games (2015)
Working Paper: Macroeconomies as constructively rational games (2015)
Working Paper: Macroeconomies as constructively rational games (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:37834

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