Erdem Basci

Learning by imitation

Abstract This paper introduces a learning algorithm that allows for imitation in recursive dynamic games. The Kiyotaki–Wright model of money is a well-known example of such decision environments. In this context, learning by experience has been studied before. Here, we introduce imitation as an additional channel for learning. In numerical simulations, we observe that the presence of imitation either speeds up social convergence to the theoretical Markov–Nash equilibrium or leads every agent of the same type to the same mode of suboptimal behavior. We observe an increase in the probability of convergence to equilibrium, as the incentives for optimal play become more pronounced.

A note on price-volume dynamics in an emerging stock market

Abstract We present a continuum economy with risk neutral agents having heterogeneous expectations and restricted short sales. A stochastic version of the model is also formulated and the resulting time series behavior of the price and volume series under a specific money supply process derived. The implications of the model are tested in the emerging Turkish stock market where institutional arrangements comply with the restrictions of the model. The results indicate that, as predicted by the model, price levels and trading volume are cointegrated. The error correction models are also estimated and found to be significant in most cases.

On the Importance of Sequencing of Markets in Monetary Economies

This paper studies money as working capital in a general equilibrium model. We argue that the way transactions are settled is the main determinant of the presence or lack of working capital in a cash-in-advance economy. In a production cycle, if the wage payments are made before sales proceeds are collected, firms have a financing need. This need alone brings, in a long run equilibrium, a deviation of real wages from marginal product of labor due to a ‘working capital premium’ in output prices. In contrast, if sales revenues can be collected before production costs are paid, then the working capital premium vanishes. These results are obtained in an economy with borrowing constraints, full equity financing, and optimal dividend policy.

Does money matter? A deterministic model with cash-in-advance constraints in factor markets

This paper points to the importance of finance constraints in affecting competitive outcomes in economies that operate with money. We study a simple dynamic economy that operates through the use of fiat money under cash-in-advance constraints in all markets. We assume that the labor market opens before the goods market and the total money stock changes at a constant rate.

Prakash and Sertel's theory of non-cooperative equilibria in social systems - twenty years later

Abstract This paper is intended as a companion to the paper ‘Existence of non-cooperative equilibria in social systems by Prakash and Sertel (1974b) appearing in this volume. It aims to perform two tasks: 1. (1) to give the reader a glimpse at the literature relevant to the existence of equilibria in social systems as it has developed since the writing of the Prakash and Sertel (PS) paper 2. (2) to provide a class of examples illustrating where the PS notions of a social system and the non-cooperative equilibrium of a social system generalize the well-known concepts of games, abstract economies and their associated equilibria, showing how the existence theory of PS even today bears economic results beyond where alternative theories are applicable.

A Sticky Wage, Limited Participation Model of Monetary Transmission

This paper studies to what extent surprise money growth may affect output, employment,and real wages from the supply side. Under nominal wage contracts, we analyze the effects of monetary shocks in a limited participation model. We observe that unanticipated money growth increases real wages, employment and output while decreasing prices. This modelling approach to the monetary transmission mechanism, while different from the more traditional demand side explanations, is consistent with empirical findings like procyclical real wages and countercyclical prices.

Social Recommendations Rather than Social Values

Abstract Two different modes of social influence on human or artificial decision makers operating in complex environments are studied. One is through emulation of social values, and the other is through social recommendations for specific actions. Two armed bandit problems are examined where agents are influenced by their peer group’s attitude. It is observed that emulation of social values may speed up learning, but may also coordinate agents on a sub-optimal mode of behavior. Social recommendations on the other hand, do help in learning equilibrium play in the same context. The results of the paper shed some light on how to incorporate social influence in stochastic decision environments.