Learning to Learn: A Case for the Heterogeneous Expectations Hypothesis in Industrialized Markets

Abstract

A cobweb model is developed where the heterogeneous expectation hypothesis is examined. An agent’s heterogeneous expectation involves the development of a “higher ordered learning” process in which agents over time develop expectations that are consistent with rational expectations. In addition, as cob web models are production based systems, an agents’ heterogeneous expectations are influenced by a specialization of activities. The case of the industrialization of the U.S. hog-pork industry is used to illustrate the influence of these features on the equilibrium and non-equilibrium properties of a modified cob-web model.