How Optimism Leads to Price Discovery and Efficiency in a Dynamic Matching Market
AbstractWe study a market search equilibrium with aggregate uncertainty, private information and heterogeneus beiefs. Traders initially start out optimistic and then update their beliefs based on their matching experience in the market, using the Bayes rule. It is shown that all separating equilibria converge to perfect competition in the limit as the time between matches tends to 0. We also establish existence of a separating equilibrium.
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Bibliographic InfoPaper provided by Concordia University, Department of Economics in its series Working Papers with number 10004.
Length: 41 pages
Date of creation: 22 Oct 2010
Date of revision:
Markets with search frictions; aggregate uncertainty; heterogeneous beliefs; optimism; bargaining; foundations of Walrasian equilibrium;
Other versions of this item:
- Majumdar, Dipjyoti & Shneyerov, Art & Xie, Huan, 2010. "How Optimism Leads to Price Discovery and Efficiency in a Dynamic Matching Market," Micro Theory Working Papers artyom_shneyerov-2010-32, Microeconomics.ca Website, revised 26 Oct 2010.
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-20 (All new papers)
- NEP-CTA-2010-11-20 (Contract Theory & Applications)
- NEP-DGE-2010-11-20 (Dynamic General Equilibrium)
- NEP-GTH-2010-11-20 (Game Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gianni De Fraja & Jozsef Sakovics, 2001.
"Walras Retrouve: Decentralized Trading Mechanisms and the Competitive Price,"
Journal of Political Economy,
University of Chicago Press, vol. 109(4), pages 842-863, August.
- Gianni De Fraja & Jozsef Sakovics, 2004. "Walras Retrouve: Decentralized Trading Mechanisms and the Competitive Price," ESE Discussion Papers 36, Edinburgh School of Economics, University of Edinburgh.
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