Download This PaperRational Heuristics? Expectations and Behaviors in Evolving Economies with Heterogeneous Interacting Agents
46 Pages Posted: 6 Apr 2020 Last revised: 23 Jan 2025
Date Written: April 2020
Abstract
We analyze the individual and macroeconomic impacts of heterogeneous expectations and action rules within an agent-based model populated by heterogeneous, interacting firms. Agents have to cope with a complex evolving economy characterized by deep uncertainty resulting from technical change, imperfect information, coordination hurdles and structural breaks. In these circumstances, we find that neither individual nor macroeconomic dynamics improve when agents replace myopic expectations with less naïve learning rules. Our results suggest that fast and frugal robust heuristics may not be a second-best option but rather “rational” responses in complex and changing macroeconomic environments.
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Joseph E. Stiglitz
Columbia University - Columbia Business School, Finance ( email )
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