Rational Heuristics ? Expectations and behaviours in evolving economies with heterogeneous interacting agents
Giovanni Dosi (),
Mauro Napoletano (),
Andrea Roventini (),
Joseph Stiglitz and
Tania Treibich ()
No 2017-32, Documents de Travail de l'OFCE from Observatoire Francais des Conjonctures Economiques (OFCE)
We analyze the individual and macroeconomic impacts of heterogeneous expectations and action rules within an agent-based model populated by heterogeneous, interacting firms. Agents have to cope with a complex evolving economy characterized by deep uncertainty resulting from technical change, imperfect information and coordination hurdles. In these circumstances, we find that neither individual nor macroeconomic dynamics improve when agents replace myopic expectations with less naïve learning rules. In fact, more sophisticated, e.g. recursive least squares (RLS) expectations produce less accurate individual forecasts and also considerably worsen the performance of the economy. Finally, we experiment with agents that adjust simply to technological shocks, and we show that individual and aggregate performances dramatically degrade. Our results suggest that fast and frugal robust heuristics are not a second-best option: rather they are “rational” in macroeconomic environments with heterogeneous, interacting agents and changing “fundamentals”.
Keywords: Complexity; expectations; heterogeneity; heuristics; learning; agent based model; computational economics (search for similar items in EconPapers)
JEL-codes: C63 E32 E6 G01 G21 O4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-cmp, nep-hme, nep-mac, nep-ore and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Working Paper: Rational Heuristics ? Expectations and behaviors in Evolving Economies with Heterogeneous interacting agents (2017)
Working Paper: Rational Heuristics? Expectations and Behaviors in Evolving Economies with Heterogeneous Interacting Agents (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fce:doctra:1732
Access Statistics for this paper
More papers in Documents de Travail de l'OFCE from Observatoire Francais des Conjonctures Economiques (OFCE) Contact information at EDIRC.
Bibliographic data for series maintained by Francesco Saraceno ().