Suchergebnisse

In dynamic economic models derived from optimization principles, the forward equilibrium dynamics may not be uniquely defined, while the backward dynamics is well defined. We derive properties of the global forward equilibrium paths based on properties of the backward dynamics. We propose the framework of iterated function systems (IFS) to describe the set of forward equilibria and apply the IFS framework to a one-and a two-dimensional version of the overlapping generations (OLG)-model. We show that if the backward dynamics is chaotic and has a homo-clinic orbit (a "snap-back repeller"), the set of forward equilibrium paths converges to a fractal attractor. Forward equilibria may be interpreted as sunspot equilibria, where a random sunspot sequence determines equilibrium selection at each date.

We present results on expectation formation in a controlled experimental environment. In each period subjects are asked to predict the next price of a risky asset. The realized market price is derived from an unknown market equilibrium equation with feedback from individual forecasts. In most experiments prices deviate from the benchmark fundamental and bubbles emerge endogenously. These bubbles are inconsistent with rational expectations and seem to be driven by trend chasing behavior or "positive feedback expectations" of the participants. We also analyze individual predictions of participants and find that participants within a group tend to coordinate on a common prediction strategy.