Expectation formation in finance and macroeconomics: A review of new experimental evidence

Bao, Te; Hommes, Cars; Pei, Jiaoying

doi:10.1016/j.jbef.2021.100591

Cited by 16 publications

(7 citation statements)

References 115 publications

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“…On the other hand, ABMs model and simulate agents' decision-making processes and interactions following the bounded rationality. Ideally, the validity for modeling the behaviors of agents is built on: 1) validated behavioral theory [12] or 2) empirical calibration based on human experiment [13], [14], survey data [15], and so on. However, this theoretical support or empirical evidence is not always available.…”

Section: Introductionmentioning

confidence: 99%

An Agent-Based Framework for Policy Simulation: Modeling Heterogeneous Behaviors With Modified Sigmoid Function and Evolutionary Training

2023

IEEE Trans. Comput. Soc. Syst.

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This article proposes an agent-based policy simulation framework that can be applied to the cases satisfying: 1) the agents try to maximize some intertemporal preference and 2) the impacts of different factors on agents' behavioral tendency are monotonic. By combining the simulation and optimization methods, this framework balances the flexibility and validity of agent-based models (ABMs): the sigmoid function is modified and used to model agents' decision-making rules, and the evolutionary training method is used to calibrate agents' behavioral parameters. Based on an example for the emission trading scheme, the application of the framework is presented and evaluated in detail.

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Section: Introductionmentioning

confidence: 99%

An Agent-Based Framework for Policy Simulation: Modeling Heterogeneous Behaviors With Modified Sigmoid Function and Evolutionary Training

2023

IEEE Trans. Comput. Soc. Syst.

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“…The integrative value of the paper, on the one hand, lies in the fact that, unlike behavioral models studied recently [8,[12][13][14][15][16], the model proposed in the publication has imperfections in the form of wage rigidity, which cannot but impose changes in the behavior of agents in the context of their animal spirits and changes in the response of macro variables to impulse responses. In particular, the paper shows that incorporating wage rigidity in the model under study as compared to the baseline model leads to changes in the monetary policy of the authorities.…”

Section: Introductionmentioning

confidence: 99%

The Specific Behavior of Economic Agents with Heterogeneous Expectations in the New Keynesian Model with Rigid Prices and Wages

Serkov

Krasnykh

2023

Mathematics

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The purpose and scientific novelty of this work is to analyze the changes and features of economic agents’ behavior when incorporating wage rigidity into a new Keynesian model under cognitive constraints of agents. The working hypothesis is the assumption that the forecasting of the output gap, inflation of prices and wages occurs with the help of fundamentalist and extrapolation rules. The first rule is based on forecasting the variables under study on the basis of their stationary values. The second rule is based on extrapolation of the latest available data on inflation and the output gap. The weight shares of agents applying these heuristic rules change endogenously, which is the source of endogenous waves of optimism and pessimism. An analysis of the impulse responses of interest rate and technology shocks suggests that a more flexible economy (an economy with flexible wages and rigid prices) is less prone to a spike in the economic cycle caused by waves of optimism and pessimism than a more rigid economy (an economy with rigid prices and wages) due to the inability of agents to respond immediately to exogenous disturbances in rigid conditions. Thus, these shocks cause wave effects in the economy, i.e., cyclical movements, i.e., a rigid economy will be more prone to booms and busts caused by alternating optimism and pessimism than a flexible economy. The model with an imperfect labor market is characterized by an increased concentration of vital forces at the values of 0 and 1, as well as in the mid-distribution compared to the base model. This feature provides a key explanation for the abnormal dynamics of the evolution of variables in this model. It is concluded that the difference between the degree of optimism and pessimism in the base model and in the model with rigid wages and prices is the full trust of agents in the central bank in targeting wage inflation in the absence of the stabilization of this inflation by the bank.

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“…The experimental dynamics depend on the feedback between forecasts and the realized variables, with two important factors highlighted by the literature (Bao et al, 2021). Firstly, the more complicated the underlying experimental economy is, the more difficult it is for the subjects to form accurate forecasts or coordinate on the RE equilibria (see Kopányi et al, 2019, for a recent example).…”

Section: Introductionmentioning

confidence: 99%

“…How relevant are these results for policy makers? A growing empirical literature demonstrates that the LtF experiments, with their non-rational outcomes, have at least some degree of external validity (Bao et al, 2021). For example, Cornand and Hubert (2020) show that actual market forecasters and experimental subjects have similar forecasting strategies and errors.…”

Section: Introductionmentioning

confidence: 99%

Macroeconomic Stability of Price Level Targeting in a Model of Heterogeneous Expectations

Makarewicz

2023

SSRN Journal

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Expectation formation in finance and macroeconomics: A review of new experimental evidence

Cited by 16 publications

References 115 publications

An Agent-Based Framework for Policy Simulation: Modeling Heterogeneous Behaviors With Modified Sigmoid Function and Evolutionary Training

An Agent-Based Framework for Policy Simulation: Modeling Heterogeneous Behaviors With Modified Sigmoid Function and Evolutionary Training

The Specific Behavior of Economic Agents with Heterogeneous Expectations in the New Keynesian Model with Rigid Prices and Wages

Macroeconomic Stability of Price Level Targeting in a Model of Heterogeneous Expectations

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