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Anchoring Economic Predictions in Common Knowledge

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Author Info
R. Guesnerie () (DELTA (Joint Research Unit CNRS, EHESS, ENS), 48 Boulevard Jourdan, ENS, 75014, Paris, France)

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Abstract

The paper examines within a unified methodology expectational coordination in a series of economic models. The methodology views the predictions associated with the Rational Expectations Hypothesis as reasonable whenever they can be derived from the more basic Common Knowledge Hypothesis. The paper successively considers a simple non-noisy "N"-dimensional model, standard models with "intrinsic" uncertainty, and reference intertemporal models with infinite horizon. It reviews existing results and suggests new ones. It translates the formal results into looser but economically intuitive statements, whose robustness, in the present state of knowledge, is tentatively ascertained. Copyright The Econometric Society 2002.

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Publisher Info
Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 70 (2002)
Issue (Month): 2 (March)
Pages: 439-480
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Handle: RePEc:ecm:emetrp:v:70:y:2002:i:2:p:439-480

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  1. Moulin, Herve, 1979. "Dominance Solvable Voting Schemes," Econometrica, Econometric Society, vol. 47(6), pages 1137-51, November. [Downloadable!] (restricted)
  2. Atsushi Kajii & Stephen Morris, 1997. "The Robustness of Equilibria to Incomplete Information," Econometrica, Econometric Society, vol. 65(6), pages 1283-1310, November.
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  3. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-80, January. [Downloadable!] (restricted)
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  4. Bryant, John, 1984. "An example of a dominance approach to rational expectations," Economics Letters, Elsevier, vol. 16(3-4), pages 249-255. [Downloadable!] (restricted)
  5. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April. [Downloadable!] (restricted)
  6. Carlsson, Hans & van Damme, Eric, 1993. "Global Games and Equilibrium Selection," Econometrica, Econometric Society, vol. 61(5), pages 989-1018, September. [Downloadable!] (restricted)
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  7. Balasko, Yves, 1994. "The expectational stability of Walrasian equilibria," Journal of Mathematical Economics, Elsevier, vol. 23(2), pages 179-203, March. [Downloadable!] (restricted)
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  8. Geanakoplos, John, 1992. "Common Knowledge," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 53-82, Fall. [Downloadable!] (restricted)
  9. Aumann, Robert & Brandenburger, Adam, 1995. "Epistemic Conditions for Nash Equilibrium," Econometrica, Econometric Society, vol. 63(5), pages 1161-80, September. [Downloadable!] (restricted)
  10. Roger Guesnerie, 2001. "Short-Run Expectational Coordination: Fixed Versus Flexible Wages," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 1115-1147, August. [Downloadable!] (restricted)
  11. Evans, George, 1985. "Expectational Stability and the Multiple Equilibria Problem in Linear Rational Expectations Models," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1217-33, November. [Downloadable!] (restricted)
  12. Borgers, Tilman, 1992. "Iterated Elimination of Dominated Strategies in a Bertrand-Edgeworth Model," Review of Economic Studies, Blackwell Publishing, vol. 59(1), pages 163-76, January. [Downloadable!] (restricted)
  13. Guesnerie, R. & Woodford, M., 1991. "Endogenous Fluctuations," DELTA Working Papers 91-10, DELTA (Ecole normale supérieure).
  14. DeCanio, Stephen J, 1979. "Rational Expectations and Learning from Experience," The Quarterly Journal of Economics, MIT Press, vol. 93(1), pages 47-57, February. [Downloadable!] (restricted)
  15. Evans, George W. & Honkapohja, Seppo, 1999. "Learning dynamics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 7, pages 449-542 Elsevier. [Downloadable!] (restricted)
  16. Basu, K. & Weibull, J.W., 1990. "Strategy Subsets Closed Under Rational Behaviour," Papers 479, Stockholm - International Economic Studies.
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  17. Townsend, Robert M, 1978. "Market Anticipations, Rational Expectations, and Bayesian Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(2), pages 481-94, June. [Downloadable!] (restricted)
  18. Guesnerie, Roger, 1992. "An Exploration of the Eductive Justifications of the Rational-Expectations Hypothesis," American Economic Review, American Economic Association, vol. 82(5), pages 1254-78, December. [Downloadable!] (restricted)
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  19. Young, H Peyton, 1996. "The Economics of Convention," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 105-22, Spring. [Downloadable!] (restricted)
  20. Vives, Xavier, 1993. "How Fast Do Rational Agents Learn?," Review of Economic Studies, Blackwell Publishing, vol. 60(2), pages 329-47, April. [Downloadable!] (restricted)
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  21. Evans George W. & Guesnerie Roger, 1993. "Rationalizability, Strong Rationality, and Expectational Stability," Games and Economic Behavior, Elsevier, vol. 5(4), pages 632-646, October. [Downloadable!] (restricted)
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  22. Fourgeaud, Claude & Gourieroux, Christian & Pradel, Jacqueline, 1986. "Learning Procedures and Convergence to Rationality," Econometrica, Econometric Society, vol. 54(4), pages 845-68, July. [Downloadable!] (restricted)
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  23. Evans George W. & Honkapohja Seppo, 1994. "On the Local Stability of Sunspot Equilibria under Adaptive Learning Rules," Journal of Economic Theory, Elsevier, vol. 64(1), pages 142-161, October. [Downloadable!] (restricted)
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