Quarterly Journal of Economics Vol. 104 No. 3 1989
Limited Rationality and Strategic Complements: The Implications for Macroeconomics
Abstract
This paper considers the implications of heterogeneity in information-processing abilities for macroeconomic models that exhibit “strategic complements.” The latter is the same concept that has received much attention in the recent macro literature under the headings Keynesian coordination problems and positive trading externalities. We consider environments in which agents vary in terms of their ability to form expectations, and ask whether it is the “sophisticated” agents or the “naive” agents who have a disproportionately large effect on macroeconomic equilibrium. We find that if macroeconomic interaction exhibits strategic complementarity, then it is the naive agents who have a disproportionate impact.
- DOI
- 10.2307/2937806
- Volume
- 104
- Issue
- 3
- Pages
- 463
- Sources
- openalex crossref