Eductive expectations coordination on deterministic cycles in an economy with identical fundamentals

Abstract

We study expectations coordination on a deterministic cycle of period 2 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 use this approach to discuss the problem of equilibrium selection between the stationary state and a cycle of period 2. We prove that locally eductively stable cycles of period 2 can exist if agents have stationary beliefs.