Discrete beliefs space and equilibrium: a cautionary note

Michele Berardi

Journal of Evolutionary Economics, 2021, vol. 31, issue 2, No 6, 505-532

Abstract: Abstract Bounded rationality requires assumptions about ways in which rationality is constrained and agents form their expectations. Evolutionary schemes have been used to model beliefs dynamics, with agents choosing endogenously among a limited number of beliefs heuristics according to their relative performance. This work shows that arbitrarily constraining the beliefs space to a finite (small) set of possibilities can generate artificial equilibria that can be stable under evolutionary dynamics. Only when “enough” heuristics are available are beliefs in equilibrium not artificially constrained. I discuss these findings in light of an alternative approach to modelling beliefs dynamics, namely, adaptive learning.

Keywords: Expectations; Evolutionary dynamics; Learning; Equilibrium (search for similar items in EconPapers)
JEL-codes: C62 D83 D84 E32 (search for similar items in EconPapers)
Date: 2021
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Working Paper: Discrete beliefs space and equilibrium: a cautionary note (2018)
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DOI: 10.1007/s00191-020-00689-1

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