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Abstract:

Theoretical Economics Paper
Modelling the Economic Interaction of Agents with Diverse Abilities to Recognise Equilibrium Patterns
Michele Piccione and Ariel Rubinstein October 2002
Paper No' TE/2002/440:
Full Paper (pdf)

Tags: debruijin; price fluctuations; sunspots; bounded rationality; bounded recall.

We model differences among agents in their ability to recognise temporal patterns of prices. Using the concept of DeBruijin sequences in two dynamic models of markets, we demonstrate the existence of equilibria in which prices fluctuate in a pattern that is independent of the fundamentals and that can be recognised only by the more competent agents.