Learning to believe in simple equilibria in a complex OLG economy - evidence from the lab

Jasmina Arifovic, Cars Hommes and Isabelle Salle

Journal of Economic Theory, 2019, vol. 183, issue C, 106-182

Abstract: We set up a laboratory experiment to empirically investigate equilibrium selection in a complex economic environment. We use the overlapping-generation model of Grandmont (1985), which displays multiple perfect-foresight equilibria, including periodic and chaotic dynamics. The equilibrium selection problem is not solved under learning, as each outcome is predicted by at least one existing learning theory. We find that subjects in the lab systematically coordinate on an equilibrium despite the complexity of the environment. Coordination only happens on simple equilibria, in this case the steady state or the period-two cycle, a result which is predicted only if the subjects follow simple learning rules. This suggests that relevant perfect-foresight equilibria should be robust to the use of simple rules.

Keywords: Laboratory experiments; Learning; Complex dynamics; Equilibrium selection (search for similar items in EconPapers)
JEL-codes: C62 C90 D83 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Working Paper: Learning to believe in Simple Equilibria in a Complex OLG Economy - evidence from the lab (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:183:y:2019:i:c:p:106-182

DOI: 10.1016/j.jet.2019.05.001

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