American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Evolutionary Selection of Individual Expectations and Aggregate Outcomes in Asset Pricing Experiments
American Economic Journal: Microeconomics
vol. 4,
no. 4, November 2012
(pp. 35–64)
Abstract
In recent "learning to forecast" experiments (Hommes et al. 2005), three different patterns in aggregate price behavior have been observed: slow monotonic convergence, permanent oscillations, and dampened fluctuations. We show that a simple model of individual learning can explain these different aggregate outcomes within the same experimental setting. The key idea is evolutionary selection among heterogeneous expectation rules, driven by their relative performance. The out-of-sample predictive power of our switching model is higher compared to the rational or other homogeneous expectations benchmarks. Our results show that heterogeneity in expectations is crucial to describe individual forecasting and aggregate price behavior. (JEL C53, C91, D83, D84, G12)Citation
Anufriev, Mikhail, and Cars Hommes. 2012. "Evolutionary Selection of Individual Expectations and Aggregate Outcomes in Asset Pricing Experiments." American Economic Journal: Microeconomics, 4 (4): 35–64. DOI: 10.1257/mic.4.4.35Additional Materials
JEL Classification
- C53 Forecasting Models; Simulation Methods
- C91 Design of Experiments: Laboratory, Individual
- D83 Search; Learning; Information and Knowledge; Communication; Belief
- D84 Expectations; Speculations
- G12 Asset Pricing; Trading volume; Bond Interest Rates
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