Eductive expectations coordination on deterministic cycles in an economy with heterogeneous agents

Abstract

In this paper we study expectations coordination on a deterministic 2-cycle by an ‘eductive’ approach in which agents are concerned with forecasting the forecasts of others. This approach is grounded in some Common Knowledge assumptions. We consider an overlapping generations economy in which agents have heterogeneous utility functions. We show that locally eductively stable 2-cycles can exist when agents have stationary beliefs. We also show that heterogeneity may hinder eductive coordination.