Hommes, C., Kiseleva, T., Kuznetsov, Y. and Verbic, M. (2012). Is more memory in evolutionary selection (de)stabilizing? Macroeconomic Dynamics, 16(3):335--357.
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Affiliated author
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Publication year2012
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JournalMacroeconomic Dynamics
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.