NDLI: Evolutionary selection of expectations in positive and negative feedback markets

Content Provider	Springer Nature Link
Author	Anufriev, Mikhail Hommes, Cars H. Philipse, Raoul H. S.
Copyright Year	2011
Abstract	An economic environment is a feedback system, where the dynamics of aggregate variables depend on individual expectations and vice versa. The type of feedback mechanism is crucial for the aggregate outcome. Experiments with human subjects (Heemeijer et al., J Econ Dyn Control 33:1052–1072, 2009) have shown that price converges to the fundamental level in a negative feedback environment but fails to do so under positive feedback. We present an explanation of these experimental results by means of a model of evolutionary switching between heuristics. Active heuristics are chosen endogenously, on the basis of their past performance. Under negative feedback an adaptive heuristic dominates explaining fast price convergence, whereas under positive feedback a trend-following heuristic dominates resulting in persistent price deviations and oscillations.
Starting Page	663
Ending Page	688
Page Count	26
File Format	PDF
ISSN	09369937
Journal	Journal of Evolutionary Economics
Volume Number	23
Issue Number	3
e-ISSN	14321386
Language	English
Publisher	Springer Berlin Heidelberg
Publisher Date	2011-10-01
Publisher Place	Berlin, Heidelberg
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Evolutionary learning Expectations feedback Experiments Economic Theory Microeconomics Economic Growth R & D/Technology Policy Entrepreneurship
Content Type	Text
Resource Type	Article
Subject	Economics and Econometrics Business, Management and Accounting

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1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
2	Indian Institute of Technology Kharagpur	Host Institute of the Project: The host institute of the project is responsible for providing infrastructure support and hosting the project	https://www.iitkgp.ac.in
3	National Digital Library of India Office, Indian Institute of Technology Kharagpur	The administrative and infrastructural headquarters of the project	Dr. B. Sutradhar bsutra@ndl.gov.in
4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
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