Fundamentalists Vs. Chartists: Learning And Predictor Choice Dynamics

In a simple, forward looking univariate model of price determination the authors investigate the evolution of endogenous predictor choice dynamics in presence of two types of agents: fundamentalists and chartists. They find that heterogeneous equilibria in which fundamentalists and chartists coexist are possible, even when the fraction of agents is endogenized. They then combine evolutionary selection among heterogeneous classes of models with adaptive learning in the form of parameter updating within each class of rules and find that equilibria in which chartists constantly outperform fundamentalists seem never to be learnable. Simulations also show that, in general, interactions between learning and predictor choice dynamics do not prevent convergence of both processes towards their equilibrium values when the equilibrium is E-stable.