A reappraisal of fundamentalists in a cobweb model with heterogeneous agents

We consider a simple evolutionary cobweb model with heterogeneous agents and propose a class of individuals aimed at addressing the limitations of perfectly rational agents and traditional fundamentalists. Fully rational expectations require complete knowledge of both the market structure and agents’ decisions. Conversely, traditional fundamentalists possess precise knowledge only of market fundamentals, though acting without considering the existence of agents with non-rational expectations. While the former information requirement is unrealistic, the latter approach may be too simplistic.We introduce a novel class of fundamentalists, the adaptive fundamentalists, in an attempt to overcome the aforementioned issues. Specifically, we posit that fundamentalists can develop expectations regarding the distribution of agents utilizing a particular forecasting strategy. This is based on their understanding of past distributions of agents and their own historical forecasting errors related to these distributions.We show that agents can accurately identify the fundamental price, and the expectation mechanisms considered are unbiased in determining the steady state price. Moreover, the steady state features the same local asymptotic stability when fundamentalist agents are either fully rational or adaptive. Finally, analytical and numerical results portrays the occurrence of complex dynamics and coexisting attractors when the steady state loses its stability.