Journal of Economic Dynamics and Control 23 (1998) 303 — 332 Expectations, (in)stability and (in)viability in realistic overlapping cohorts models Gyo¨rgy Molna´r*, Andra´s Simonovits Institute of Economics, HAS, Budao ( rsi u & t 45, Budapest 1112, Hungary Abstract In this paper we shall consider the multi-cohort generalization of overlapping genera- tions models, namely overlapping cohorts (OLC) models. Each time-period consumers of different ages form expectations on future interest rates and conditionally maximize utility arising from their remaining consumption paths under the condition of zero bequest. For every time period a coordinator determines the new interest rate to ensure that the total consumption is equal to the total endowment of the society. The message of the paper is the following: (1) In OLC, the dynamics generated by rational expectations is frequently not only unstable but unviable. (2) In OLC, the dynamics generated by naive expectations is practically asymptotically stable and viable around the lower steady state.  1998 Elsevier Science B.V. All rights reserved. Keywords: Overlapping generations; Rational expectations; Naive expectations 1. Introduction One of the most interesting practical and theoretical economic questions is the dynamics generated by the interactions of overlapping cohorts of different ages. Such models are used to explain the burning issues of pension problems as * Corresponding author. E-mail: molnar@econ.core.hu  Andra´s Simonovits’ research was financed by the Hungarian Science Foundation (OTKA ¹ 019696) and a Fulbright Scholarship at Boston University. We express our gratitude to M. Augusztinovicsfor introducing us to multi-cohort modeling, to O. Blanchard, A. Bro´dy, P. Eso¨ , B. Martos, A. Ra´tfai and an anonymous referee for their careful reading of earlier versions. However, none of them is responsible for the content of the paper. 0165-1889/98/$ — see front matter  1998 Elsevier Science B.V. All rights reserved. PII S0165-1889(97)00121-8