Individual Expectations , Limited Rationality and Aggregate Outcomes ∗

@inproceedings{Bao2010IndividualE,
  title={Individual Expectations , Limited Rationality and Aggregate Outcomes ∗},
  author={Te Bao and Cars Hommes and Joep Sonnemans and Jan Tuinstra},
  year={2010}
}
Recent studies suggest that the type of strategic environment or expectation feedback can have a large impact on whether the market can learn the rational fundamental price. We present an experiment where the fundamental price experiences large unexpected shocks. Markets with negative expectation feedback (strategic substitutes) quickly converge to the new fundamental, while markets with positive expectation feedback (strategic complements) do not converge, but show under-reaction in the short… CONTINUE READING
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