Evolutionary Selection of Individual Expectations and Aggregate Outcomes in Asset Pricing Experiments

Mikhail Anufriev and Cars Hommes

American Economic Journal: Microeconomics, 2012, vol. 4, issue 4, 35-64

Abstract: In recent "learning to forecast" experiments (Hommes et al. 2005), three different patterns in aggregate price behavior have been observed: slow monotonic convergence, permanent oscillations, and dampened fluctuations. We show that a simple model of individual learning can explain these different aggregate outcomes within the same experimental setting. The key idea is evolutionary selection among heterogeneous expectation rules, driven by their relative performance. The out-of-sample predictive power of our switching model is higher compared to the rational or other homogeneous expectations benchmarks. Our results show that heterogeneity in expectations is crucial to describe individual forecasting and aggregate price behavior. (JEL C53, C91, D83, D84, G12)

JEL-codes: C53 C91 D83 D84 G12 (search for similar items in EconPapers)
Date: 2012
Note: DOI: 10.1257/mic.4.4.35
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Citations: View citations in EconPapers (198)

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Working Paper: Evolutionary Selection of Individual Expectations and Aggregate Outcomes in Asset Pricing Experiments (2011)
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