Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
884030 | Journal of Economic Behavior & Organization | 2010 | 16 Pages |
Abstract
This paper presents a linear self-referential macroeconomic model with the possibility of multiple equilibria where agents have the choice of using one of two forecasting models (one of minimum state variable form and the other of sunspot form) to form expectations of current and future prices. Endogenous predictor selection is modeled as an evolutionary game where individuals choose among the forecasting models based on relative performance. Some Nash solutions are not relevant as they are not stable under evolutionary or adaptive learning. Finally, it is shown that the sunspot equilibrium is fragile against temporary shocks to information costs.
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Authors
Eran A. Guse,