Evolutionary selection of expectations in positive and negative feedback markets

Mikhail Anufriev, Cars Hommes and Raoul Philipse

Journal of Evolutionary Economics, 2013, vol. 23, issue 3, 663-688

Abstract: An economic environment is a feedback system, where the dynamics of aggregate variables depend on individual expectations and vice versa. The type of feedback mechanism is crucial for the aggregate outcome. Experiments with human subjects (Heemeijer et al., J Econ Dyn Control 33:1052–1072, 2009 ) have shown that price converges to the fundamental level in a negative feedback environment but fails to do so under positive feedback. We present an explanation of these experimental results by means of a model of evolutionary switching between heuristics. Active heuristics are chosen endogenously, on the basis of their past performance. Under negative feedback an adaptive heuristic dominates explaining fast price convergence, whereas under positive feedback a trend-following heuristic dominates resulting in persistent price deviations and oscillations. Copyright The Author(s) 2013

Keywords: Evolutionary learning; Expectations feedback; Experiments; D03; G12; D84; C91; C92 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (43)

Downloads: (external link)
http://hdl.handle.net/10.1007/s00191-011-0242-4 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Evolutionary Selection of Expectations in Positive and Negative Feedback Markets (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:joevec:v:23:y:2013:i:3:p:663-688

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/191/PS2

DOI: 10.1007/s00191-011-0242-4

Access Statistics for this article

Journal of Evolutionary Economics is currently edited by Uwe Cantner, Elias Dinopoulos, Horst Hanusch and Luigi Orsenigo

More articles in Journal of Evolutionary Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().