Evolutionary selection of expectations in positive and negative feedback markets

Anufriev, M; Hommes, CH; Philipse, RHS

Evolutionary selection of expectations in positive and negative feedback markets

Anufriev, M

Hommes, CH

Philipse, RHS

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Publication Type:: Journal Article
Citation:: Journal of Evolutionary Economics, 2013, 23 (3), pp. 663 - 688
Issue Date:: 2013-01-01

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Field	Value	Language
dc.contributor.author	Anufriev, M https://orcid.org/0000-0002-1842-6814	en_US
dc.contributor.author	Hommes, CH https://orcid.org/0000-0002-2260-2665	en_US
dc.contributor.author	Philipse, RHS	en_US
dc.date.issued	2013-01-01	en_US
dc.identifier.citation	Journal of Evolutionary Economics, 2013, 23 (3), pp. 663 - 688	en_US
dc.identifier.issn	0936-9937	en_US
dc.identifier.uri	http://hdl.handle.net/10453/23509
dc.description.abstract	An economic environment is a feedback system, where the dynamics of aggregate variables depend on individual expectations and vice versa. The type of feedback mechanism is crucial for the aggregate outcome. Experiments with human subjects (Heemeijer et al., J Econ Dyn Control 33:1052-1072, 2009) have shown that price converges to the fundamental level in a negative feedback environment but fails to do so under positive feedback. We present an explanation of these experimental results by means of a model of evolutionary switching between heuristics. Active heuristics are chosen endogenously, on the basis of their past performance. Under negative feedback an adaptive heuristic dominates explaining fast price convergence, whereas under positive feedback a trend-following heuristic dominates resulting in persistent price deviations and oscillations. © 2011 The Author(s).	en_US
dc.relation.ispartof	Journal of Evolutionary Economics	en_US
dc.relation.isbasedon	10.1007/s00191-011-0242-4	en_US
dc.subject.classification	Economics	en_US
dc.title	Evolutionary selection of expectations in positive and negative feedback markets	en_US
dc.type	Journal Article
utslib.citation.volume	3	en_US
utslib.citation.volume	23	en_US
utslib.for	1401 Economic Theory	en_US
utslib.for	1402 Applied Economics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Economics Discipline
utslib.copyright.status	closed_access
pubs.issue	3	en_US
pubs.publication-status	Published	en_US
pubs.volume	23	en_US

Abstract:

An economic environment is a feedback system, where the dynamics of aggregate variables depend on individual expectations and vice versa. The type of feedback mechanism is crucial for the aggregate outcome. Experiments with human subjects (Heemeijer et al., J Econ Dyn Control 33:1052-1072, 2009) have shown that price converges to the fundamental level in a negative feedback environment but fails to do so under positive feedback. We present an explanation of these experimental results by means of a model of evolutionary switching between heuristics. Active heuristics are chosen endogenously, on the basis of their past performance. Under negative feedback an adaptive heuristic dominates explaining fast price convergence, whereas under positive feedback a trend-following heuristic dominates resulting in persistent price deviations and oscillations. © 2011 The Author(s).

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