Can an AI agent hit a moving target?
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As the economies we live in are evolving over time, it is imperative that economic agents in models form expectations that can adjust to changes in the environment. This exercise offers a plausible expectation formation model that connects to computer science, psychology and neural science research on learning and decision-making, and applies it to an economy with a policy regime change. Employing the actor-critic model of reinforcement learning, the agent born in a fresh environment learns through first interacting with the environment. This involves taking exploratory actions and observing the corresponding stimulus signals. This interactive experience is then used to update its subjective belief about the world. I show, through several simulation experiments, that the agent adjusts its subjective belief facing an increase of inflation target. Moreover, the subjective belief evolves according to the agent's experience in the world.
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