Title
Macroeconomies as constructively rational games
Campus Units
Economics
Document Type
Article
Publication Version
Submitted Manuscript
Publication Date
2015
Journal or Book Title
Journal of Economic Dynamics and Control
Volume
61
First Page or Article ID Number
152
Last Page
182
DOI
10.1016/j.jedc.2015.09.011
Abstract
Real-world decision-makers are forced to be locally constructive; that is, their decisions are necessarily constrained by their interaction networks, information, beliefs, and physical states. This study transforms an otherwise standard dynamic macroeconomic model into an open-ended dynamic game by requiring consumers and firms with intertemporal utility and profit objectives to be locally constructive. Tested locally constructive decision processes for the consumers and firms range from simple reactive reinforcement learning to adaptive dynamic programming (ADP). Computational experiments are used to explore macroeconomic performance under alternative decision-process combinations relative to a social planner benchmark solution. A key finding is that simpler decision processes can outperform more sophisticated decision processes such as ADP. However, memory length permitting some degree of adaptive foresight is critical for good performance.
JEL Classification
B4, C6, C7, E2, E3
Recommended Citation
Sinitskaya, Ekaterina and Tesfatsion, Leigh, "Macroeconomies as constructively rational games" (2015). Economics Publications. 332.
https://lib.dr.iastate.edu/econ_las_pubs/332
Comments
This is a working paper of an article from Journal of Economic Dynamics and Control, Vol. 61 (2015), 152-182, doi:10.1016/j.jedc.2015.09.011.