Rational heuristics? Expectations and behaviors in evolving economies with heterogeneous interacting agents

Giovanni Dosi*, Mauro Napoletano, Andrea Roventini, Joseph E. Stiglitz, Tania Treibich

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

20 Citations (Web of Science)

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.
Original languageEnglish
Pages (from-to)1487-1516
Number of pages30
JournalEconomic Inquiry
Volume58
Issue number3
Early online date14 Apr 2020
DOIs
Publication statusPublished - Jul 2020

JEL classifications

  • c63 - "Computational Techniques; Simulation Modeling"
  • d80 - Information, Knowledge, and Uncertainty: General
  • e32 - "Business Fluctuations; Cycles"
  • e60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
  • o40 - Economic Growth and Aggregate Productivity: General

Keywords

  • EVOLUTIONARY SELECTION
  • MARKET IMPERFECTIONS
  • OUTPUT GROWTH
  • MACROECONOMICS
  • CREDIT
  • INFORMATION
  • MODEL
  • UNCERTAINTY
  • FIRMS
  • DISTRIBUTIONS

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