RATIONAL HEURISTICS? EXPECTATIONS AND BEHAVIORS IN EVOLVING ECONOMIES WITH HETEROGENEOUS INTERACTING AGENTS

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, imperfe...

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Bibliographic Details
Published in:Economic inquiry 2020-07, Vol.58 (3), p.1487-1516
Main Authors: Dosi, Giovanni, Napoletano, Mauro, Roventini, Andrea, Stiglitz, Joseph E., Treibich, Tania
Format: Article
Language:English
Subjects:
Agents
Coordination
Economics and Finance
Heuristic
Humanities and Social Sciences
Macroeconomics
Uncertainty
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Summary: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. (JEL C63, D8, E32, E6, O4)
ISSN:0095-2583
1465-7295
DOI:10.1111/ecin.12897