Loading...
Convergence in models of misspecified learning
Title / Series / Name
Publication Volume
Publication Issue
Pages
Editors
Keywords
Bayesian learning
Berk–Nash equilibrium
D83
D90
Misspecified model
convergence
General Economics,Econometrics and Finance
Berk–Nash equilibrium
D83
D90
Misspecified model
convergence
General Economics,Econometrics and Finance
URI
https://hdl.handle.net/20.500.14018/27347
Abstract
We establish convergence of beliefs and actions in a class of one-dimensional learning settings in which the agent's model is misspecified, she chooses actions endogenously, and the actions affect how she misinterprets information. Our stochastic-approximation-based methods rely on two crucial features: that the state and action spaces are continuous, and that the agent's posterior admits a one-dimensional summary statistic. Through a basic model with a normal–normal updating structure and a generalization in which the agent's misinterpretation of information can depend on her current beliefs in a flexible way, we show that these features are compatible with a number of specifications of how exactly the agent updates. Applications of our framework include learning by a person who has an incorrect model of a technology she uses or is overconfident about herself, learning by a representative agent who may misunderstand macroeconomic outcomes, and learning by a firm that has an incorrect parametric model of demand.
Topic
Publisher
Place of Publication
Type
Journal article
Date
2021-01
Language
ISBN
Identifiers
10.3982/TE3558