Emergent inequality and business cycles in a simple behavioral macroeconomic model.

ABSTRACT: Standard macroeconomic models assume that households are rational in the sense that they are perfect utility maximizers and explain economic dynamics in terms of shocks that drive the economy away from the steady state. Here we build on a standard macroeconomic model in which a single rational representative household makes a savings decision of how much to consume or invest. In our model, households are myopic boundedly rational heterogeneous agents embedded in a social network. From time to time each household updates its savings rate by copying the savings rate of its neighbor with the highest consumption. If the updating time is short, the economy is stuck in a poverty trap, but for longer updating times economic output approaches its optimal value, and we observe a critical transition

SUBMITTER: Asano YM 

PROVIDER: S-EPMC8271739 | biostudies-literature | 2021 Jul

REPOSITORIES: biostudies-literature