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Toward a Strategic Foundation for Rational Expectations Equilibrium

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  • Philip J Reny
  • Motty Perry

Abstract

A step toward a strategic foundation for rational expectations equilibrium is taken by considering a double auction with n buyers and m sellers with interdependent values and affiliated private information. If there are sufficiently many buyers and sellers, and their bids are restricted to a sufficiently fine discrete set of prices, then, generically, there is an equilibrium in nondecreasing bidding functions that is arbitrarily close to the unique fully revealing rational expectations equilibrium of the limit market with unrestricted bids and a continuum of agents. In particular, the large double-auction equilibrium is almost efficient and almost fully aggregates the agents' information. Copyright The Econometric Society 2006.

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File URL: http://hdl.handle.net/10.1111/j.1468-0262.2006.00703.x
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Bibliographic Info

Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 74 (2006)
Issue (Month): 5 (09)
Pages: 1231-1269

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Handle: RePEc:ecm:emetrp:v:74:y:2006:i:5:p:1231-1269

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Cited by:
  1. Gresik, Thomas A., 2011. "The effects of statistically dependent values on equilibrium strategies of bilateral k-double auctions," Games and Economic Behavior, Elsevier, vol. 72(1), pages 139-148, May.
  2. Vasiliki Skreta & Laura Veldkamp, 2008. "Ratings Shopping and Asset Complexity: A Theory of Ratings Inflation," Working Papers 08-28, New York University, Leonard N. Stern School of Business, Department of Economics.
  3. Hitoshi Matsushima, 2007. "Detail-Free Mechanism Design in Twice Iterative Dominance: Large Economies," CIRJE F-Series CIRJE-F-519, CIRJE, Faculty of Economics, University of Tokyo.
  4. Shneyerov, Artyom & Wong, Adam Chi Leung, 2010. "The rate of convergence to perfect competition of matching and bargaining mechanisms," Journal of Economic Theory, Elsevier, vol. 145(3), pages 1164-1187, May.
  5. Ostrovsky, Michael, 2009. "Information Aggregation in Dynamic Markets with Strategic Traders," Research Papers 2053, Stanford University, Graduate School of Business.
  6. Araujo, Aloisio & de Castro, Luciano I., 2009. "Pure strategy equilibria of single and double auctions with interdependent values," Games and Economic Behavior, Elsevier, vol. 65(1), pages 25-48, January.
  7. Duffie, Darrell & Malamud, Semyon & Manso, Gustavo, 2009. "The Relative Contributions of Private Information Sharing and Public Information Releases to Information Aggregation," Research Papers 2023, Stanford University, Graduate School of Business.
  8. Xavier Vives, 2011. "A Large-Market Rational Expectations Equilibrium Model," CESifo Working Paper Series 3485, CESifo Group Munich.
  9. Green, Edward J. & Zhou, Ruilin, 2010. "Perfectly competitive bilateral exchange without discounting," Journal of Monetary Economics, Elsevier, vol. 57(2), pages 121-131, March.
  10. Dang, Tri Vi, 2008. "Bargaining with endogenous information," Journal of Economic Theory, Elsevier, vol. 140(1), pages 339-354, May.

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