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Anufriev, Mikhail, and
Cars Hommes. 2012. "Evolutionary Selection of Individual Expectations and Aggregate Outcomes in Asset Pricing Experiments."
,
4(4): 35-64.
Show Article Details
DOI: 10.1257/mic.4.4.35
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)
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Authors:
Anufriev, Mikhail (U Technology Sydney)
Hommes, Cars (CeNDEF, U Amsterdam)
JEL Classifications:
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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