Chaotic dynamics in an overlapping generations model with myopic and adaptive expectations

Hung J. Chen; Ming-Chia Li; Yung J. Lin

doi:10.1016/j.jebo.2007.03.005

Chaotic dynamics in an overlapping generations model with myopic and adaptive expectations

Hung J. Chen^*, Ming-Chia Li, Yung J. Lin

^*Corresponding author for this work

National Chiao Tung University

Research output: Contribution to journal › Article › peer-review

16 Scopus citations

Abstract

In this paper, we study dynamic behavior of an overlapping generations model under three different expectations: perfect foresight, myopic expectations and adaptive expectations. We show that economic transition under myopic or adaptive expectations is very different from that under perfect foresight. When agents are perfectly foresighted, dynamics is simple, with a unique steady state that is globally attracting. However, cycles and chaotic motion can appear under myopic and adaptive expectations. We study the possibility of Li-Yorke chaos under myopic expectations and entropic chaos under adaptive expectations.

Original language	English
Pages (from-to)	48-56
Number of pages	9
Journal	Journal of Economic Behavior and Organization
Volume	67
Issue number	1
DOIs	https://doi.org/10.1016/j.jebo.2007.03.005
State	Published - 1 Jul 2008

Keywords

Adaptive expectations
Chaos
Myopic expectations
Perfect foresight

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