Heterogeneous beliefs and the non-linear cobweb model

✍ Scribed by Jacob K. Goeree; Cars H. Hommes

• Book ID: 104293693
• Publisher: Elsevier Science
• Year: 2000
• Tongue: English
• Weight: 425 KB
• Volume: 24
• Category: Article
• ISSN: 0165-1889
• DOI: 10.1016/s0165-1889(99)00025-1

✦ Synopsis

This paper generalizes the evolutionary cobweb model with heterogeneous beliefs of Brock and Hommes (1997. Econometrica 65, 1059}1095), to the case of non-linear demand and supply. Agents choose between a simple, freely available prediction strategy such as naive expectations and a sophisticated, costly prediction strategy such as rational expectations, and update their beliefs according to an evolutionary &"tness' measure such as past realized net pro"ts. It is shown that, for generic non-linear, monotonic demand and supply curves, the evolutionary dynamics exhibits &rational routes to randomness', that is, bifurcation routes to strange attractors occur when the traders' sensitivity to di!erences in evolutionary "tness increases.