Formation of rationally heterogeneous expectations

D. Pfajfar

Research output: Contribution to journalArticleScientificpeer-review

Abstract

This paper models expectation formation by taking into account that agents may produce heterogeneous expectations because of informational frictions and differing levels of a capacity to process information. We show that there are two general classes of steady states within this framework: those where strictly dominated forecasting rules vanish, and those heterogeneous states where a positive proportion of agents uses a more costly perfect foresight. We demonstrate 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
Pages (from-to)1434-1452
JournalJournal of Economic Dynamics and Control
Volume37
Issue number8
DOIs
Publication statusPublished - 2013

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