Working Paper: NBER ID: w26922
Authors: Giovanni Dosi; Mauro Napoletano; Andrea Roventini; Joseph E. Stiglitz; Tania Treibich
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.
Keywords: Heterogeneous expectations; Agent-based model; Macroeconomic dynamics; Heuristics
JEL Codes: C63; D81; E32; E6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| naive expectations (D84) | economic performance (P17) |
| adaptive expectations (D84) | economic performance (P17) |
| recursive least squares (RLS) learning (C51) | forecast accuracy (C53) |
| forecast accuracy (C53) | economic performance (P17) |
| sophisticated forecasting methods (C53) | forecast errors (C53) |
| simple heuristics (D91) | economic performance (P17) |
| naive expectations (D84) | forecast errors (C53) |