Dynamics of Beliefs and Learning Under aL Processes - The Heterogeneous Case

Carl Chiarella and Xuezhong (Tony) He ()

No 55, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: This paper studies a class of models in which agents' expectations influence the actual dynamics while the expectations themselves are the outcome of some recursive processes with bounded memory. Under the assumptions of heterogeneous expectations (or beliefs) and that the agents update their expectations by recursive L- and general aL-processes, the dynamics of the resulting expectations and learning schemes are analyzed. It is shown that the dynamics of the system, including stability, instability and bifurcation, are affected differently by the recursive processes. The cobweb model with a simple heterogeneous expectation scheme is employed as an example to illustrate the stability results, the various types of bifurcations and the routes to complicated price dynamics. In particular, the double edged effect of heterogeneity on the dynamics of the model is demonstrated.

Keywords: heterogeneous beliefs; recursive L-process; general aL-process; stability; instability; bifucation; cobweb model (search for similar items in EconPapers)
Pages: 34 pages
Date: 2001-06-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Published as: Chiarella, C. and He, X., 2003, "Dynamics of Beliefs and Learning Under aL Processes - The Heterogeneous Cases", Journal of Economic Dynamics and Control, 27(3), 503-531.

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Journal Article: Dynamics of beliefs and learning under aL-processes -- the heterogeneous case (2003)
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