Revelation of Information in Strategic Market Games: A Critique of Rational Expectations
AbstractWe criticize the R.E.E. approach to asymmetric information general equilibrium because it does not explain how information gets "into" the prices. This leads to well-known paradoxes. We suggest a multiperiod game instead, where the flow of information into and out of prices is explicitly modeled. In our game Nash equilibria (N.E.) (1) generalize Walrasian equilibria to asymmetric information; (2) (2) exist generically; (3) eliminate pure speculation; (4) allow prices to reveal information and markets to become more efficient over time; (5) are consistent with the weak efficient markets hypothesis that tracking past prices is not profitable; (6) yet always lead to higher utility for better informed agents (such as experts). Throughout the paper we use one concrete game. In the last section we prove that there are a broad range of games that would have the same properties.
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Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 634R.
Length: 50 pages
Date of creation: 1982
Date of revision: Nov 1985
Publication status: Published in Journal of Mathematical Economics (1987), 16: 105-137
Note: CFP 686.
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Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
Phone: (203) 432-3702
Fax: (203) 432-6167
Web page: http://cowles.econ.yale.edu/
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
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.:
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"Information About Moves in Extensive Games: II,"
Cowles Foundation Discussion Papers
629, Cowles Foundation for Research in Economics, Yale University.
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- Blume, Lawrence E. & Easley, David, 1982. "Learning to be rational," Journal of Economic Theory, Elsevier, vol. 26(2), pages 340-351, April.
- Shorish, Jamsheed, 2006.
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186, Institute for Advanced Studies.
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- Richard McLean & James Peck & Andrew Postlewaite, 2004. "On Price-Taking Behavior in Asymmetric Information Economies," PIER Working Paper Archive 04-040, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Matthew O. Jackson & James Peck, 1993. "Costly Information Acquisition," Discussion Papers 1087, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- James Peck & Matthew O. Jackson, 1999.
"Asymmetric information in a competitive market game: Reexamining the implications of rational expectations,"
Springer, vol. 13(3), pages 603-628.
- Matthew O. Jackson & James Peck, 1997. "Asymmetric Information in a Competitive Market Game: Reexamining the Implications of Rational Expectations," Microeconomics 9711004, EconWPA.
- Martin Shubik, 1993. "The Theory of Money and Financial Institutions," Cowles Foundation Discussion Papers 1056, Cowles Foundation for Research in Economics, Yale University.
- Bochet,Olivier, 2005. "Switching from Complete to Incomplete Information," Research Memorandum 035, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
- Pradeep Dubey & John Geanakoplos & Martin Shubik, 1988. "Default and Efficiency in a General Equilibrium Model with Incomplete Markets," Cowles Foundation Discussion Papers 879R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1989.
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