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The perfect foresights' assumption revisited : (I) the existence of equilibrium with multiple price expectations

Author

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  • Lionel de Boisdeffre

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

Our earlier papers had extend to asymmetric information the classical existence theorems of general equilibrium theory, under the standard assumption that agents had perfect foresights, that is, they knew, ex ante, which price would prevail on each spot market. Common observation suggests, however, that agents more often trade with an un-precise knowledge of future prices. We now let agents anticipate, in each random state, a set of plausible prices, called expectations, endowed with a probability distribution. These expectations are assumed to define a so-called "structure of beliefs", along which agents' expectations sets intersect on each spot market. We introduce a related concept of "correct foresights equilibrium" (CFE), in which equilibrium prices belong to all agents expectations sets. We prove that the existence of a CFE is still characterized by the no-arbitrage condition of finance. This result, which extends our earlier theorems, shows that private information or price uncertainty would not affect the existence but only the value of equilibrium prices and allocations.

Suggested Citation

  • Lionel de Boisdeffre, 2008. "The perfect foresights' assumption revisited : (I) the existence of equilibrium with multiple price expectations," Post-Print halshs-00354814, HAL.
    • Handle: RePEc:hal:journl:halshs-00354814
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00354814
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