Rational Heuristics? Expectations and Behaviors in Evolving Economies with Heterogeneous Interacting Agents

46 Pages Posted: 6 Apr 2020

See all articles by Giovanni Dosi

Giovanni Dosi

Scuola Superiore Sant'Anna di Pisa - Department of Economics

Mauro Napoletano

Observatoire Français des Conjonctures Economiques (OFCE); SKEMA Business School; Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM)

Andrea Roventini

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM); Observatoire Français des Conjonctures Economiques (OFCE)

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Tania Treibich

Maastricht University - Department of Economics; Scuola Superiore Sant'Anna di Pisa; Observatoire Français des Conjonctures Economiques (OFCE)

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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Suggested Citation

Dosi, Giovanni and Napoletano, Mauro and Roventini, Andrea and Stiglitz, Joseph E. and Treibich, Tania, Rational Heuristics? Expectations and Behaviors in Evolving Economies with Heterogeneous Interacting Agents (April 2020). NBER Working Paper No. w26922, Available at SSRN: https://ssrn.com/abstract=3569386

Giovanni Dosi (Contact Author)

Scuola Superiore Sant'Anna di Pisa - Department of Economics ( email )

Rome, 00198
Italy

Mauro Napoletano

Observatoire Français des Conjonctures Economiques (OFCE) ( email )

60, rue Dostoïevski
Sophia-Antipolis Cedex, 06902
France

HOME PAGE: http://www.ofce.sciences-po.fr

SKEMA Business School ( email )

60 rue Dostoïevski
Sophia Antipolis, 06902
France

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM) ( email )

Piazza Martiri della Liberta, 33
Pisa, I-56127
Italy

Andrea Roventini

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM) ( email )

Piazza Martiri della Liberta', 33-I-56127
Pisa
Italy

Observatoire Français des Conjonctures Economiques (OFCE)

69 Quai d'Orsay
Paris 75004
France

Joseph E. Stiglitz

Columbia Business School - Finance and Economics ( email )

3022 Broadway
814 Uris Hall
New York, NY 10027
United States
(212) 854-0671 (Phone)
(212) 662-8474 (Fax)

HOME PAGE: http://www.josephstiglitz.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tania Treibich

Maastricht University - Department of Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Scuola Superiore Sant'Anna di Pisa ( email )

Pisa
Italy

Observatoire Français des Conjonctures Economiques (OFCE) ( email )

69 Quai d'Orsay
Paris 75004
France

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