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Using Genetic Algorithms to Model the Evolution of Heterogeneous Beliefs

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Author Info
Bullard, James
Duffy, John

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Abstract

We study a general equilibrium system where agents have heterogeneous beliefs concerning realizations of possible outcomes. The actual outcomes feed back into beliefs thus creating a complicated nonlinear system. Beliefs are updated via a genetic algorithm learning process which we interpret as representing communication among agents in the economy. We are able to illustrate a simple principle: genetic algorithms can be implemented so that they represent pure learning effects (i.e., beliefs updating based on realizations of endogenous variables in an environment with heterogeneous beliefs). Agents optimally solve their maximization problem at each date given their beliefs at each date. We report the results of a set of computational experiments in which we find that our population of artificial adaptive agents is usually able to coordinate their beliefs so as to achieve the Pareto superior rational expectations equilibrium of the model. Citation Copyright 1999 by Kluwer Academic Publishers.

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Publisher Info
Article provided by Springer in its journal Computational Economics.

Volume (Year): 13 (1999)
Issue (Month): 1 (February)
Pages: 41-60
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Handle: RePEc:kap:compec:v:13:y:1999:i:1:p:41-60

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Web page: http://www.springerlink.com/link.asp?id=100248

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. James Bullard & John Duffy, 1994. "A model of learning and emulation with artificial adaptive agents," Working Papers 1994-014, Federal Reserve Bank of St. Louis. [Downloadable!]
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  2. Arifovic, Jasmina & Eaton, Curtis, 1995. "Coordination via Genetic Learning," Computational Economics, Springer, vol. 8(3), pages 181-203, August.
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  3. Arifovic, Jasmina, 1996. "The Behavior of the Exchange Rate in the Genetic Algorithm and Experimental Economies," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 510-41, June. [Downloadable!] (restricted)
  4. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall. [Downloadable!]
  5. Ramon Marimon & Shyam Sunder, 1993. "Expectations and Learning Under Alternative Monetary Regimes: An Experimental Approach," Economics Working Papers 37, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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  6. repec:fth:simfra:94-11 is not listed on IDEAS
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  1. Orlando Gomes, . "Volatility, Heterogeneous Agents and Chaos," The Electronic Journal of Evolutionary Modeling and Economic Dynamics, IFReDE - Université Montesquieu Bordeaux IV. [Downloadable!]
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  2. Carl Chiarella & Xue-Zhong He & Duo Wang, 2004. "Statistical Properties of a Heterogeneous Asset Price Model with Time-Varying Second Moment," Research Paper Series 142, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  3. Xue-Zhong (Tony) He & Carl Chiarella, 2001. "Asset Price and Wealth Dynamics under Heterogeneous Expectations," CeNDEF Workshop Papers, January 2001 5A.2, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
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  4. Windrum,Paul, 1999. "Simulation models of technological innovation: A Review," Research Memoranda 005, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology. [Downloadable!]
  5. Carl Chiarella & Xue-Zhong He & Duo Wang, 2004. "Asset Price Dynamics with Time-Varying Second Moment," Research Paper Series 141, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  6. Xue-Zhong He, 2003. "Asset Pricing, Volatility and Market Behaviour: A Market Fraction Approach," Research Paper Series 95, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  7. Xue-Zhong He & Youwei Li, 2005. "Long Memory, Heterogeneity and Trend Chasing," Research Paper Series 148, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
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  8. Carl Chiarella & Xue-Zhong He, 2000. "Stability of Competitive Equilibria with Heterogeneous Beliefs and Learning," Research Paper Series 37, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  9. Carl Chiarella & Xue-Zhong He, 2001. "Dynamics of Beliefs and Learning Under aL Processes - The Heterogeneous Case," Research Paper Series 55, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
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  10. Carl Chiarella & Xue-Zhong He, 2002. "An Adaptive Model on Asset Pricing and Wealth Dynamics with Heterogeneous Trading Strategies," Research Paper Series 84, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
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  11. Carl Chiarella & Xue-Zhong He, 2000. "Heterogeneous Beliefs, Risk and Learning in a Simple Asset Pricing Model with a Market Maker," Research Paper Series 35, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  12. M. Utku Unver, 2001. "Internet Auctions with Artificial Adaptive Agents," Computing in Economics and Finance 2001 38, Society for Computational Economics. [Downloadable!]
  13. Shu-Heng Chen & Chia-Hsuan Yeh, 1999. "Evolving Traders and the Faculty of the Business School: A New Architecture of the Artificial Stock Market," Computing in Economics and Finance 1999 613, Society for Computational Economics. [Downloadable!]
  14. Xue-Zhong He & Youwei Li, 2005. "Heterogeneity, Profitability and Autocorrelations," Research Paper Series 147, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
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  15. Jie-Shin Lin & Chris Birchenhall, 2000. "Learning And Adaptive Artificial Agents: An Analysis Of Evolutionary Economic Models," Computing in Economics and Finance 2000 327, Society for Computational Economics. [Downloadable!]
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