Dynamics of Beliefs and Learning Under aL Processes - The Homogeneous Case

This paper studies a class of models in which agents' expectations influence the actual dynamics while the expectations themselves are the outcome of some learning process. Under the assumptions that agents have homogeneous expectations (or beliefs) and that they update their expectations by least-squares L- and general aL - processes, the dynamic of the resulting expectations and learning schemes are analyzed. It is shown how the dynamics of the system, including stability, instability and bifurcation, are affected by the learning processes. The cobweb model with a simple homogeneous expectation scheme is employed as an example to illustrate the stability results, the various types of bifurcations and the routes to complicated price dynamics.