Learning about the Cobweb

In this paper we consider how suppliers in a cobweb model may learn about their economic environment. Instead of assuming the one step backward-looking expectation scheme of the traditional linear cobweb model, we consider the subjective estimates of the statistical distribution of the market prices based on L-step backward time series of market clearing prices. With constant risk aversion, the cobweb model becomes nonlinear. Sufficient conditions on the local stability of the unique positive equilibrium of the nonlinear model are derived and, consequently, we show that the local stability region (of the parameters of the equation) is proportional to the lag length L When the equilibrium loses its local stability, we show that, for L=2, the model has strong 1:3 resonance bifurcation and a family of fixed points of order 3 becomes unstable on both sides of criticality. The numerical simulations suggest that the model has a simple global structure, it has no complicated dynamics as claimed recently by Boussard. However, complicated dynamics do appear when the model is modified with constant elasticity supply and demand.