Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/89230
Authors: 
Hommes, Cars
Year of Publication: 
2013
Series/Report no.: 
Tinbergen Institute Discussion Paper 13-204/II
Abstract: 
Rational expectations assumes perfect, model consistency between beliefs and market realizations. Here we discuss behaviorally rational expectations, characterized by an observable, parsimonious and intuitive form of consistency between beliefs and realizations. We discuss three case-studies. Firstly, a New Keynesian macro model with a representative agent learning an optimal, but misspeci ed, AR(1) rule to forecast inflation consistent with observed sample mean and first-order autocorrelations. Secondly, an asset pricing model with heterogeneous expectations and agents switching between a mean-reverting fundamental rule and a trend-following rule, based upon their past performance. The third example concerns learning-to-forecast laboratory experiments, where under positive feedback individuals coordinate expectations on non-rational, almost self-fulling equilibria with persistent price fluctuations very different from rational equilibria.
Subjects: 
Expectation feedback
self-ful lling beliefs
heuristic switching model
experimental economics
JEL: 
D84
D83
E32
C92
Document Type: 
Working Paper

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