Theory of Adaptive Adjustment

Conventional adaptive expectation as a mechanism of stabilizing an unstable economic process is reexamined through a generalization to an adaptive adjustment framework. The generic structures of equilibria that can be stabilized through an adaptive adjustment mechanism are identified. The generalization can be applied to a broad class of discrete economic processes where the variables interested can be adjusted or controlled directly by economic agents such as in cobweb dynamics, Cournot games, Oligopoly markets, tatonnement price adjustment, tariff games, population control through immigration etc.

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