IS MORE MEMORY IN EVOLUTIONARY SELECTION (DE)STABILIZING?

Cars Hommes, Tatiana Kiseleva, Yuri Kuznetsov and Miroslav Verbič

Macroeconomic Dynamics, 2012, vol. 16, issue 3, 335-357

Abstract: We investigate the effects of memory on the stability of evolutionary selection dynamics based on a multinomial logit model in a simple asset pricing model with heterogeneous beliefs. Whether memory is stabilizing or destabilizing depends in general on three key factors: (1) whether or not the weights on past observations are normalized; (2) the ecology or composition of forecasting rules, in particular the average trend extrapolation factor and the spread or diversity in biased forecasts; and (3) whether or not costs for information gathering of economic fundamentals have to be incurred.

Date: 2012
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Working Paper: Is more memory in evolutionary selection (de)stabilizing? (2009)
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