Please use this identifier to cite or link to this item: http://hdl.handle.net/2440/41233
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Type: Journal article
Title: On Forecasting Heterogeneity, Irrational Exuberance, and the Multiplicity of Rational Expectations Equilibria
Author: Weder, M.
Citation: Journal of Economics-Zeitschrift fur Nationalokonomie, 2002; 76(3):201-215
Publisher: Springer-Verlag Wien
Issue Date: 2002
ISSN: 0931-8658
Abstract: This paper evaluates the role of limited rationality in an equilibrium model with indeterminacy of rational expectations. We assume a world in which a fraction of agents makes predictions via rational expectations and the other fraction follows simple rule-of-thumb schemes. For all considered cases, the co-presence of naive agents tends to reduce the possibility of sunspot equilibria. We also consider the case that some agents are systematically exuberant. Under this scenario, the effect of naive agents is reversed: bullishness may in fact destabilize markets.
Keywords: Indeterminacy; rational expectations; limited rationality
RMID: 0020075291
DOI: 10.1007/s007120200040
Published version: http://www.springerlink.com/content/u93dl618l9fumgxv/
Appears in Collections:Economics publications

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