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IS MORE MEMORY IN EVOLUTIONARY SELECTION (DE)STABILIZING?

Published online by Cambridge University Press:  17 February 2011

Cars Hommes
Affiliation:
University of Amsterdam
Tatiana Kiseleva
Affiliation:
University of Amsterdam
Yuri Kuznetsov
Affiliation:
Utrecht University
Miroslav Verbic
Affiliation:
University of Ljubljana
Corresponding
E-mail address:

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.

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Articles
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Copyright © Cambridge University Press 2011

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IS MORE MEMORY IN EVOLUTIONARY SELECTION (DE)STABILIZING?
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