Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/273389 
Year of Publication: 
2023
Series/Report no.: 
BERG Working Paper Series No. 187
Publisher: 
Bamberg University, Bamberg Economic Research Group (BERG), Bamberg
Abstract: 
We develop a nonlinear duopoly model in which the heuristic expectation formation and learning behavior of two boundedly rational firms may engender complex dynamics. Most importantly, we assume that the firms employ different forecasting models to predict the behavior of their opponent. Moreover, the firms learn by leaning more strongly on forecasting models that yield more precise predictions. An eight-dimensional nonlinear map drives the dynamics of our approach. We analytically derive the conditions under which its unique steady state is locally stable and numerically study its out-of-equilibrium behavior. In doing so, we detect multiple scenarios with coexisting attractors at which the firms' behavior yields distinctively different market outcomes.
Subjects: 
Duopoly model
heuristic expectation formation
learning behavior
nonlinear dynamics
stability and bifurcation analysis
coexisting attractors
JEL: 
C73
D43
L12
ISBN: 
978-3-949224-08-9
Document Type: 
Working Paper

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