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

Muhammed Bulutay, Camille Cornand and Adam Zylbersztejn

Journal of Economic Behavior & Organization, 2022, vol. 200, issue C, 1318-1343

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. Notably, refining these rules with similarity-based learning approach improves their predictive power.

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: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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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)
Working Paper: Learning to deal with repeated shocks under strategic complementarity: An experiment (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:200:y:2022:i:c:p:1318-1343

DOI: 10.1016/j.jebo.2020.05.023

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