Institutional Affiliations: Maastricht University and OFCE Sciences Po and Institute of Economics, Scuola Superiore Sant'Anna
NBER Working Papers and Publications
|April 2020||Rational Heuristics? Expectations and Behaviors in Evolving Economies with Heterogeneous Interacting Agents|
with Giovanni Dosi, Mauro Napoletano, Andrea Roventini, Joseph E. Stiglitz: w26922
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.