Abstract
We investigate the effects of memory on the stability of evolutionary selection
dynamics based on a multi-nomial logit model in an asset pricing model
with heterogeneous beliefs. Whether memory is stabilizing or destabilizing
depends in general on three key factors: (1) whether or not the weights on
past observations are normalized; (2) the ecology of forecasting rules, in particular
the average strength of trend extrapolation and the spread in biased
forecasts, and (3) whether or not costs for information gathering of economic
fundamentals have to be incurred.
dynamics based on a multi-nomial logit model in an asset pricing model
with heterogeneous beliefs. Whether memory is stabilizing or destabilizing
depends in general on three key factors: (1) whether or not the weights on
past observations are normalized; (2) the ecology of forecasting rules, in particular
the average strength of trend extrapolation and the spread in biased
forecasts, and (3) whether or not costs for information gathering of economic
fundamentals have to be incurred.
| Original language | English |
|---|---|
| Pages (from-to) | 335-357 |
| Number of pages | 23 |
| Journal | Macroeconomic Dynamics (paper) |
| Volume | 16 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - 2012 |
Keywords
- fitness measure
- asset pricing
- bifurcations
- evolutionary selection
- heterogeneous beliefs
- memory strength