Agent-Based Learning in 'Islands' with 'Sticky Information': An Explanation for the Persistence of Real Effects

This paper outlines a model where a household forms subjective expectations about his income by 'anchoring' on a professional's forecasts of the aggregate economy. Hence, the household is able to form relative (or real) income expectations. However, he observes the professional's forecasts imperfectly and only adjusts his expectations partially. Using the 'Lucas- Phelps Island' scenario, set in the context of households, we show how persistence of real effects could arise in such a scenario.