AbstractConsider an exchange economy with asymmetric information. What is the set of outcomes that are consistent with common knowledge of rationality and market clearing? We propose the concept of CKRMC as an answer to this question. The set of price functions that are CKRMC is the maximal set F with the property that every f?F defi?nes prices that clear the markets for demands that can be rationalized by some profile of subjective beliefs on F. Thus, the difference between CKRMC and Rational Expectations Equilibrium (REE) is that CKRMC allows for a situation where the agents do not know the true price function and furthermore may have different beliefs about it. We characterize CKRMC, study its properties, and apply it to a general class of economies with two commodities. CKRMC manifests intuitive properties that stand in contrast to the full revelation property of REE. In particular, we obtain that for a broad class of economies: (1) There is a whole range of prices that are CKRMC in every state. (2) The set of CKRMC outcomes is monotonic with the amount of information in the economy.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The Center for the Study of Rationality, Hebrew University, Jerusalem in its series Discussion Paper Series with number dp461.
Length: 40 pages
Date of creation: Nov 2006
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-10 (All new papers)
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.:
- Guesnerie, R., 1999.
"Anchoring Economic Predictions in Common Knowledge,"
DELTA Working Papers
1999-06, DELTA (Ecole normale supérieure).
- R. Guesnerie, 2002. "Anchoring Economic Predictions in Common Knowledge," Econometrica, Econometric Society, vol. 70(2), pages 439-480, March.
- DUTTA, Jayasri & MORRIS, Stephen, 1995.
"The Revelation of Information and Self-Fulfilling Beliefs,"
CORE Discussion Papers
1995076, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Dutta, Jayasri & Morris, Stephen, 1997. "The Revelation of Information and Self-Fulfilling Beliefs," Journal of Economic Theory, Elsevier, vol. 73(1), pages 231-244, March.
- Jayasri Dutta & Stephen Morris, . ""The Revelation of Information and Self-Fulfilling Beliefs''," CARESS Working Papres 95-03, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
- Jayasri Dutta & Stephen Morris, . "The Revelation of Information and Self-Fulfilling Beliefs," Penn CARESS Working Papers 269cceedcbd401a5e46548b88, Penn Economics Department.
- Stephen Morris, .
"Justifying Rational Expectations,"
Penn CARESS Working Papers
9c26245814018c6e9fadb3767, Penn Economics Department.
- Elchanan Ben-Porath, 2007. "Trade with Heterogeneous Beliefs," Levine's Bibliography 122247000000001494, UCLA Department of Economics.
- Elchanan Ben-Porath, 2007. "Trade with Heterogeneous Beliefs," Discussion Paper Series dp462, The Center for the Study of Rationality, Hebrew University, Jerusalem.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ilan Nehama).
If references are entirely missing, you can add them using this form.