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Formation of rationally heterogeneous expectations

Pfajfar,D.
Abstract
This paper models expectation formation by taking into account that agents may produce heterogeneous expectations because of informational frictions and differing levels of a capacity to process information. We show that there are two general classes of steady states within this framework: those where strictly dominated forecasting rules vanish, and those heterogeneous states where a positive proportion of agents uses a more costly perfect foresight. We demonstrate that intrinsic heterogeneity can also arise in a model where the forecasting rules are not equally costly and do not exhibit identical performance in the long run.
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2013
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Tilburg University Research Output Collection
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Pfajfar, D 2013, 'Formation of rationally heterogeneous expectations', Journal of Economic Dynamics & Control, vol. 37, no. 8, pp. 1434-1452. https://doi.org/10.1016/j.jedc.2013.03.012
URI
https://hdl.handle.net/20.500.14602/59324
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info:eu-repo/semantics/restrictedAccess
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