Learning in a Complex World Insights from an OLG Lab Experiment

Cars Hommes, Stefanie Huber, Daria Minina and Isabelle Salle

No 283, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

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 se- lection; Laboratory experiments (search for similar items in EconPapers)
JEL-codes: C62 C92 E17 E70 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2024-03
New Economics Papers: this item is included in nep-dge and nep-exp
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https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_283_2024.pdf First version, 2024 (application/pdf)

Related works:
Journal Article: 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:ajk:ajkdps:283

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