Discrete beliefs space and equilibrium: a cautionary note
Michele Berardi ()
Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The University of Manchester
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, beliefs in equilibrium are not arti?cially constrained. I discuss these findings in light of an alternative approach to modelling beliefs dynamics, namely adaptive learning.
Pages: 36 pages
New Economics Papers: this item is included in nep-evo, nep-gth, nep-hpe and nep-upt
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Journal Article: Discrete beliefs space and equilibrium: a cautionary note (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:man:cgbcrp:242
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