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Dynamics of beliefs and learning under aL-processes — the heterogeneous case

✍ Scribed by Carl Chiarella; Xue-Zhong He

Publisher
Elsevier Science
Year
2003
Tongue
English
Weight
314 KB
Volume
27
Category
Article
ISSN
0165-1889

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✦ Synopsis

This paper studies a class of models in which agents' expectations in uence 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 a L -processes, the dynamics of the resulting expectations and recursive schemes are analyzed. It is shown that the dynamics of the system, including stability, instability and bifurcation, are a ected di erently 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 e ect of heterogeneity on the dynamics of the model is demonstrated.

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