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Rational Heuristics? Expectations and Behaviors in Evolving Economies with Heterogeneous Interacting Agents

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

NBER Working Paper No. 26922
Issued in April 2020
NBER Program(s):Economic Fluctuations and Growth

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.

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Document Object Identifier (DOI): 10.3386/w26922

Published: Giovanni Dosi & Mauro Napoletano & Andrea Roventini & Joseph E. Stiglitz & Tania Treibich, 2020. "RATIONAL HEURISTICS? EXPECTATIONS AND BEHAVIORS IN EVOLVING ECONOMIES WITH HETEROGENEOUS INTERACTING AGENTS," Economic Inquiry, vol 58(3), pages 1487-1516. citation courtesy of

 
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