• Media type: Report; E-Book
  • Title: Learning in a complex world insights from an OLG lab experiment
  • Contributor: Hommes, Cars H. [Author]; Huber, Stefanie J. [Author]; Minina, Daria [Author]; Salle, Isabelle [Author]
  • Published: Bonn and Cologne: University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), 2024
  • Language: English
  • Keywords: Overlapping-generation (OLG) models ; Equilibria selection ; Laboratory experiments ; E17 ; C92 ; Complexity ; Learning ; C62 ; E70
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  • Description: This paper brings novel insights into group coordination and price dynamics in complex environments. We implement an overlapping-generation model in the lab, where the output dynamics is given by the well-known chaotic quadratic map. This model structure allows us to study previously unexplored parameter regions where the perfect-foresight dynamics exhibits chaotic dynamics. This paper highlights three key findings. First, the price converges to the simplest equilibria, namely the monetary steady state or the two-cycle, in all markets. Second, we document a novel and intriguing finding: we observe a non-monotonicity of the behavior when complexity increases. Convergence to the two-cycle occurs for the intermediate parameter range, while both the extreme scenarios of a simple stable two-cycle and highly non-linear dynamics (with chaos) lead to coordination on the steady state in the lab. All indicators of coordination and convergence significantly exhibit this non-monotonic relationship in the learning-to-forecast experiments and this non-monotonicity persists in the learning-to-optimize design. Third, convergence in the learning-to-optimize experiment is more challenging to achieve: coordination on the two-cycle is never observed, although the two-cycle Pareto-dominates the steady state in our design.
  • Access State: Open Access