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Can Chocolate Be Money as a Medium of Exchange? Belief Learning Vs. Reinforcement Learning

Author(s): 
Toshiji Kawagoe
Date: 
Fri, 2008-03-07
Abstract: 

In this paper, a variant of Kiyotaki and Wright model of emergence of money is investigated. In the model, each good has different durability rather than storage cost assumed in Kiyotaki and Wright model. Two goods are infinitely durable but one is not durable. With certain condition, non durable good can be money as a medium of exchange. But equilibrium condition may be sensitive to the time evolution of the distribution of goods that each agent holds in its inventory. We test, with several learning models using different level of information, whether or not the steady state in this economy can be attainable if the distribution of goods is far from the steady state distribution. Belief learning with full information outperforms other models. The steady state never be attained by belief learning with partial information. Agents learn not to use non durable good as money by reinforcement learning which does use no information of the distribution of goods. It is surprising that providing partial information of the distribution of goods is rather detrimental for attaining emergence of a non-durable good money.

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