The assumption of perfectly rational representative agents is now commonly questioned. This paper explores the equilibrium properties of boundedly rational heterogeneous agents. We combine an adaptive learning process in a modified cobweb model within a Stackleberg framework. We assume that...

We analyse the results of a laboratory experiment on expectation formation. Participants were asked to predict prices in an artificial single-good economy, and were paid according to their forecasting accuracy. Thirteen markets, with six subjects each, were created, in two different treatments....

I introduce a method to transform a T-map when agents form expectations using a misspecified learning mechanism inconsistent with a structural equation of a multivariate economic model. By transforming the perceived law of motion (PLM) into a the form of a Seemingly Unrelated Regression (SUR)...

We use a continuous-time approximation approach to analyze dynamics of a model where government adaptively learns the Phillips curve while running monetary policy (Phellps problem). This approach is based on approximating the discrete-time dynamics with learning by a limiting continuous-time...

The paper recognizes that expectations and the process of their formation are subject to standard decision making and are determined as a part of equilibrium. Accordingly, the paper presents a basic framework in which the form of expectation formation is a choice variable. At any point in time...

Foreign exchange markets regularly display severe bubbles. This paper explores whether or not so-called target zone interventions are an effective tool for central banks to stabilize the exchange rate. We define such intervention operations as buying/selling an undervalued/overvalued currency...

The issue regarding the influence of intelligence on market efficiency has been discussed for a long time. Gode and Sunder (1993) mentioned that the aggregate behavior of zero-intelligence traders is able to generate an efficient market. They introduced two types of markets composed of...

This paper studies a game theoretic model where agents choose between two updating rules to predict a future endogenous variable. Agents rationally choose between these predictors based on relative performance. Conditions for evolutionary stability and stability under learning are found for the...

We develop a model in which boundedly rational agents apply technical and fundamental analysis to identify trading signals in two different speculative markets. Whether an agent trades and, if so, in which market with which strategy depends on profit considerations. As it turns out, an ongoing...

This paper aims at integrating heterogeneous boundedly rational speculators into the classical cobweb framework in which the producers have naive expectations. The net supply available to consumers thus depends on the positions of the speculators who switch between technical and fundamental...