Abstract
In this study we investigate the dynamics of a nonlinear discrete-time duopoly game, where the players have heterogeneous expectations. Two players with different expectations are considered; one is boundedly rational and the other thinks with adaptive expectations. The stability conditions of the equilibria are discussed. We show how the dynamics of the game depend on the model parameters. We demonstrate that as some parameters of the game are varied, the stability of Nash equilibrium is lost through period doubling bifurcation. The chaotic features are justified numerically via computing Lyapunov exponents, sensitive dependence on initial conditions and the fractal dimension.
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