Learning in a complex world: Insights from an OLG lab experiment

Cars Hommes, Stefanie Huber, Daria Minina and Isabelle Salle

Journal of Economic Behavior & Organization, 2024, vol. 220, issue C, 813-837

Abstract: This paper brings novel insights into group coordination and price dynamics in complex environments. We implement an overlapping-generation model in the lab, where the output dynamics is given by the well-known chaotic quadratic map. This model structure allows us to study previously unexplored parameter regions where the perfect-foresight dynamics exhibits chaotic dynamics. This paper highlights three key findings. First, the price converges to the simplest equilibria, namely the monetary steady state or the two-cycle, in all markets. Second, we document a novel and intriguing finding: we observe a non-monotonicity of the behavior when complexity increases. Convergence to the two-cycle occurs for the intermediate parameter range, while both the extreme scenarios of a simple stable two-cycle and highly non-linear dynamics (with chaos) lead to coordination on the steady state in the lab. All indicators of coordination and convergence significantly exhibit this non-monotonic relationship in the learning-to-forecast experiments and this non-monotonicity persists in the learning-to-optimize design. Third, convergence in the learning-to-optimize experiment is more challenging to achieve: coordination on the two-cycle is never observed, although the two-cycle Pareto-dominates the steady state in our design.

Keywords: Overlapping-generation (OLG) models; Complexity; Learning; Equilibria selection; Laboratory experiments (search for similar items in EconPapers)
JEL-codes: C62 C92 E17 E70 (search for similar items in EconPapers)
Date: 2024
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Related works:
Working Paper: Learning in a Complex World Insights from an OLG Lab Experiment (2024)
Working Paper: Learning in a Complex World: Insights from an OLG Lab Experiment (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:220:y:2024:i:c:p:813-837

DOI: 10.1016/j.jebo.2024.03.004

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