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Expectations formation under adaptive learning and evolutionary dynamics

Michele Berardi ()

Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The University of Manchester

Abstract: Bounded rationality requires assumptions about ways in which rationality is constrained, and different assumptions are likely to lead to different economic predictions. In a simple forward-looking model we compare adaptive learning and evolutionary dynamics as means to model the process of beliefs' adaptation in response to observed outcomes. We show that the two methods deliver different conclusions about equilibrium and transition dynamics, and we try to shed some light on the reasons for such discrepancies.

Pages: 25 pages
Date: 2015
New Economics Papers: this item is included in nep-cbe and nep-evo
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