On The Preservation of Deterministic Cycles When Some Agents Perceive Them To Be Random Fluctuations

Some recent equilibrium models, based on perfect foresight, give rise to complex but deterministic fluctuations in prices and quantities. We modify the hypothesis of universal perfect foresight by injecting into the economy a nonneglible fraction of less informed agents who optimize their expected utility with respect to the statistical distribution of prices in the deterministic dynamics. For the standard overlapping generations model it is proved that if the fraction of consumers with limited knowledge is sufficiently high, than all equilibrium cycles of period k≥2 disappear. The global properties of the case of 2 cycles is studied in detail. 

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