Formation of Rationally Heterogeneous Expectations

D. Pfajfar

Research output: Working paperDiscussion paperOther research output

250 Downloads (Pure)

Abstract

Abstract: This paper models expectation formation by taking into account that agents produce heterogeneous expectations due to model uncertainty, informational frictions and different capacities for processing information. We show that there are two general classes of steady states within this framework: those where strictly dominated forecasting rules vanish, and intrinsic heterogeneous steady states where a positive proportion of agents use a more costly perfect foresight. This demonstrates that intrinsic heterogeneity can also arise in a model where the forecasting rules are not equally costly, and do not exhibit identical performance in the long run.
Original languageEnglish
Place of PublicationTilburg
PublisherEconomics
Number of pages39
Volume2012-083
Publication statusPublished - 2012

Publication series

NameCentER Discussion Paper
Volume2012-083

Fingerprint

Intrinsic
Heterogeneous expectations
Friction
Expectation formation
Model uncertainty
Information processing
Perfect foresight
Proportion

Keywords

  • Heterogeneous expectations
  • cobweb model
  • adaptive learning
  • rational expectations

Cite this

Pfajfar, D. (2012). Formation of Rationally Heterogeneous Expectations. (CentER Discussion Paper; Vol. 2012-083). Tilburg: Economics.
Pfajfar, D. / Formation of Rationally Heterogeneous Expectations. Tilburg : Economics, 2012. (CentER Discussion Paper).
@techreport{f256da5cc71149c8bd129c3d8d64c676,
title = "Formation of Rationally Heterogeneous Expectations",
abstract = "Abstract: This paper models expectation formation by taking into account that agents produce heterogeneous expectations due to model uncertainty, informational frictions and different capacities for processing information. We show that there are two general classes of steady states within this framework: those where strictly dominated forecasting rules vanish, and intrinsic heterogeneous steady states where a positive proportion of agents use a more costly perfect foresight. This demonstrates that intrinsic heterogeneity can also arise in a model where the forecasting rules are not equally costly, and do not exhibit identical performance in the long run.",
keywords = "Heterogeneous expectations, cobweb model, adaptive learning, rational expectations",
author = "D. Pfajfar",
note = "Pagination: 39",
year = "2012",
language = "English",
volume = "2012-083",
series = "CentER Discussion Paper",
publisher = "Economics",
type = "WorkingPaper",
institution = "Economics",

}

Pfajfar, D 2012 'Formation of Rationally Heterogeneous Expectations' CentER Discussion Paper, vol. 2012-083, Economics, Tilburg.

Formation of Rationally Heterogeneous Expectations. / Pfajfar, D.

Tilburg : Economics, 2012. (CentER Discussion Paper; Vol. 2012-083).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Formation of Rationally Heterogeneous Expectations

AU - Pfajfar, D.

N1 - Pagination: 39

PY - 2012

Y1 - 2012

N2 - Abstract: This paper models expectation formation by taking into account that agents produce heterogeneous expectations due to model uncertainty, informational frictions and different capacities for processing information. We show that there are two general classes of steady states within this framework: those where strictly dominated forecasting rules vanish, and intrinsic heterogeneous steady states where a positive proportion of agents use a more costly perfect foresight. This demonstrates that intrinsic heterogeneity can also arise in a model where the forecasting rules are not equally costly, and do not exhibit identical performance in the long run.

AB - Abstract: This paper models expectation formation by taking into account that agents produce heterogeneous expectations due to model uncertainty, informational frictions and different capacities for processing information. We show that there are two general classes of steady states within this framework: those where strictly dominated forecasting rules vanish, and intrinsic heterogeneous steady states where a positive proportion of agents use a more costly perfect foresight. This demonstrates that intrinsic heterogeneity can also arise in a model where the forecasting rules are not equally costly, and do not exhibit identical performance in the long run.

KW - Heterogeneous expectations

KW - cobweb model

KW - adaptive learning

KW - rational expectations

M3 - Discussion paper

VL - 2012-083

T3 - CentER Discussion Paper

BT - Formation of Rationally Heterogeneous Expectations

PB - Economics

CY - Tilburg

ER -

Pfajfar D. Formation of Rationally Heterogeneous Expectations. Tilburg: Economics. 2012. (CentER Discussion Paper).