Fundamentalists vs. chartists: Learning and predictor choice dynamics

In a simple, forward looking univariate model of price determination we investigate the evolution of expectations dynamics in the presence of two types of agents: fundamentalists and chartists. In particular, we combine evolutionary selection among heterogeneous classes of models through predictor choice dynamics based on a logit model, with adaptive learning in the form of parameters updating within each class of rules. We find that, for different parameterizations, it can happen that fundamentalists drive chartists completely out of the market or vice versa, and also that heterogeneous equilibria in which fundamentalists and chartists coexist are possible. Interestingly, though, only equilibria in which fundamentalists outperform chartists turn out to be adaptively learnable by agents. © 2011 Elsevier B.V.