Formation of rationally heterogeneous expectations

Damjan Pfajfar

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 8, 1434-1452

Abstract: This paper models expectation formation by taking into account that agents may produce heterogeneous expectations because of informational frictions and differing levels of a capacity to process information. We show that there are two general classes of steady states within this framework: those where strictly dominated forecasting rules vanish, and those heterogeneous states where a positive proportion of agents uses a more costly perfect foresight. We demonstrate that intrinsic heterogeneity can also arise in a model where the forecasting rules are not equally costly and do not exhibit identical performance in the long run.

Keywords: Heterogeneous expectations; Cobweb model; Adaptive learning; Rational expectations (search for similar items in EconPapers)
JEL-codes: C62 D83 D84 E30 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Working Paper: Formation of Rationally Heterogeneous Expectations (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:8:p:1434-1452

DOI: 10.1016/j.jedc.2013.03.012

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