Functional Rational Expectations Equilibria in Market Games
AbstractThe rational expectations equilibrium has been criticized as an equilibrium concept in market game environments. Such an equilibrium may not exist generically, or it may introduce unrealistic assumptions about an economic agent's knowledge or computational ability. We define a rational expectations equilibrium as a probability measure over uncertain states of nature which exploits all available information in a market game, and which exists for almost all economies. Furthermore, if retrading is allowed, it is possible for agents to compute such a 'functional rational expectations equilibrium' using straightforward numerical fixed point algorithms.
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Bibliographic InfoPaper provided by Institute for Advanced Studies in its series Economics Series with number 186.
Length: 17 pages
Date of creation: Feb 2006
Date of revision:
Postal: Institute for Advanced Studies - Library, Stumpergasse 56, A-1060 Vienna, Austria
Other versions of this item:
- Jamsheed Shorish, 2010. "Functional rational expectations equilibria in market games," Economic Theory, Springer, vol. 43(3), pages 351-376, June.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
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