Beyond rational expectations: The effects of heuristic switching in an Overlapping Generations model

B-Tier
Journal: Journal of Economic Behavior and Organization
Year: 2018
Volume: 155
Issue: C
Pages: 349-364

Score contribution per author:

1.005 = (α=2.01 / 2 authors) × 1.0x B-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

We explore the transitional dynamics in an Overlapping Generations framework with and without heuristic switching. Agents use simple heuristics to forecast the interest rate and the real wage. The fraction of agents using a specific heuristic depends on its relative forecasting performance. In the absence of heuristic switching, the results indicate that there is a lot of variation in the transitional dynamics over different parameter values and heuristics. When agents switch between heuristics, however, the variation in the transitional dynamics decreases significantly. We show that heuristic switching has a stabilising effect on transitional dynamics that would otherwise exhibit permanent oscillations.

Technical Details

RePEc Handle
repec:eee:jeborg:v:155:y:2018:i:c:p:349-364
Journal Field
Theory
Author Count
2
Added to Database
2026-01-24