Rational Heuristics? Expectations and Behaviors in Evolving Economies With Heterogeneous Interacting Agents

Abstract

We analyze the individual and macroeconomic impacts of heterogeneous expectations and action rules within an agent-based model populated by heterogeneous, interacting firms. Agents have to cope with a complex evolving economy characterized by deep uncertainty resulting from technical change, imperfect information, coordination hurdles, and structural breaks. In these circumstances, we find that neither individual nor macroeconomic dynamics improve when agents replace myopic expectations with less naïve learning rules. Our results suggest that fast and frugal robust heuristics may not be a second-best option but rather "rational" responses in complex and changing macroeconomic environments. (JEL C63, D8, E32, E6, O4)

Faraway, So Close: Coupled Climate and Economic Dynamics in an Agent-based Integrated Assessment Model

“…The results are robust for di erent expectation setups. More on that inDosi et al (2006) andDosi et al (2017a).10 This is in line with a large body of empirical analyses showing that replacement investment is typically not proportional to the capital stock (e.g Feldstein and Foot, 1971;Eisner, 1972;Goolsbee, 1998)Rotemberg (2008) for details on pricing, imperfect information and behavioural attitudes of consumers andBoca et al (2008) for presence of gestation lag e ects in rms' investments.12 Notice that rms' deposits constitute the only "debt" of the bank in the model.…”

Income inequality, consumption, credit and credit risk in a data-driven agent-based model

“…The only, to the best of the author's knowledge, macroeconomic ABM where the HSM is used, is by Dosi et al (2017) where the authors find that expectations do not have a large effect on the dynamics of the economy. However, credit demand in the present model depends heavily on income expectations and is essentially determined by households' forecast errors; optimistic households whose actual income is less than expected will likely ask for credit; on the contrary, pessimistic households will consume less, save more and deleverage.…”

More is different ... and complex! the case for agent-based macroeconomics

“…Rather, fourth, they must rely on heuristics (Simon, 1955(Simon, , 1959Cyert and March, 1992), which turns out to be robust tools for inference and actions (Gigerenzer and Brighton, 2009;Haldane, 2012;Dosi et al, 2017a).…”

“…See also Dosi et al (2013Dosi et al ( , 2015aDosi et al ( , 2016b for extensions studying the the possible interactions between credit markets and real dynamics and the impact of different combinations of fiscal and monetary policies. Dosi et al (2017a) study the role of heterogeneous and adaptive expectations on the performance of the economy. A series of works (Dosi et al, 2017b(Dosi et al, ,c, 2018c) extend the K+S model to study the decentralized interactions of firms and workers in the labor markets and the impact of structural reforms.…”