Simple Forecasting Heuristics that Make Us Smart: Evidence from Different Market Experiments

50 Pages Posted: 24 Jul 2015

See all articles by Mikhail Anufriev

Mikhail Anufriev

University of Technology Sydney (UTS)

Cars H. Hommes

Government of Canada - Bank of Canada; CeNDEF, Amsterdam School of Economics, University of Amsterdam; Tinbergen Institute

Tomasz Makarewicz

University of Bamberg

Date Written: July 13, 2015

Abstract

We study a model in which individual agents use simple linear first order price forecasting rules, adapting them to the complex evolving market environment with a smart Genetic Algorithm optimization procedure. The novelties are: (1) a parsimonious experimental foundation of individual forecasting behaviour; (2) an explanation of individual and aggregate behavior in four different experimental settings, (3) improved one-period and 50-period ahead forecasting of lab experiments, and (4) a characterization of the mean, median and empirical distribution of forecasting heuristics. The median of the distribution of GA forecasting heuristics can be used in designing or validating simple Heuristic Switching Model.

Keywords: Expectation Formation, Learning to Forecast Experiment, Genetic Algorithm Model of Individual Learning

JEL Classification: C53, C63, C91, D03, D83, D84

Suggested Citation

Anufriev, Mikhail and Hommes, Cars H. and Makarewicz, Tomasz, Simple Forecasting Heuristics that Make Us Smart: Evidence from Different Market Experiments (July 13, 2015). Available at SSRN: https://ssrn.com/abstract=2634445 or http://dx.doi.org/10.2139/ssrn.2634445

Mikhail Anufriev

University of Technology Sydney (UTS) ( email )

P. O. Box 123
Broadway, NSW 2007
Australia

Cars H. Hommes

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

CeNDEF, Amsterdam School of Economics, University of Amsterdam ( email )

Roetersstraat 11
Amsterdam, NL-1018WB
Netherlands

HOME PAGE: http://https://www.uva.nl/en/profile/h/o/c.h.hommes/c.h.hommes.html

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Tomasz Makarewicz (Contact Author)

University of Bamberg ( email )

Kirschaeckerstrasse 39
Bamberg, 96045
Germany

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