Discrete beliefs space and equilibrium: a cautionary note

Michele Berardi

Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The University of Manchester

Abstract: Bounded rationality requires assumptions about ways in which rationality is constrained and agents form their expectations. Evolutionary schemes have been used to model beliefs dynamics, with agents choosing endogenously among a limited number of beliefs heuristics according to their relative performance. This work shows that arbitrarily constraining the beliefs space to a finite (small) set of possibilities can generate artificial equilibria that can be stable under evolutionary dynamics. Only when "enough" heuristics are available, beliefs in equilibrium are not arti?cially constrained. I discuss these findings in light of an alternative approach to modelling beliefs dynamics, namely adaptive learning.

Pages: 36 pages
Date: 2018
New Economics Papers: this item is included in nep-evo, nep-gth, nep-hpe and nep-upt
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Related works:
Journal Article: Discrete beliefs space and equilibrium: a cautionary note (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:man:cgbcrp:242

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