Adaptive learning and complex dynamics

Orlando Gomes

Chaos, Solitons & Fractals, 2009, vol. 42, issue 2, 1206-1213

Abstract: In this paper, we explore the dynamic properties of a group of simple deterministic difference equation systems in which the conventional perfect foresight assumption gives place to a mechanism of adaptive learning. These systems have a common feature: under perfect foresight (or rational expectations) they all possess a unique fixed point steady state. This long-term outcome is obtained also under learning if the quality underlying the learning process is high. Otherwise, when the degree of inefficiency of the learning process is relatively strong, nonlinear dynamics (periodic and a-periodic cycles) arise. The specific properties of each one of the proposed systems is explored both in terms of local and global dynamics. One macroeconomic model is used to illustrate how the formation of expectations through learning may eventually lead to awkward long-term outcomes.

Date: 2009
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Working Paper: Adaptive Learning and Complex Dynamics (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:chsofr:v:42:y:2009:i:2:p:1206-1213

DOI: 10.1016/j.chaos.2009.03.077

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