Coordination on saddle path solutions: the eductive viewpoint

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Coordination on saddle path solutions: the eductive viewpoint

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George W. Evans () (University of Oregon Economics Department)
Roger Guesnerie ("DELTA, E.N.S.")

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Abstract

We investigate local strong rationality (LSR) in a one step forward looking univariate model with memory one. Eductive arguments are used to determine when common knowledge (CK) that the solution is near some perfect foresight path is sufficient to trigger complete coordination on that path (I.e. the path is LSR). Coordination of expectations is shown to depend on three factors: the nature of the CK initial beliefs, the degree of structural heterogeneity and the information structure. Our sufficient conditions for LSR precisely reflect these features and provide basic consistent justifications for the choice of the saddle path solution.

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Paper provided by University of Oregon Economics Department in its series University of Oregon Economics Department Working Papers with number 2001-7.

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Length: 26
Date of creation: 01 Sep 1999
Date of revision: 15 May 2001
Handle: RePEc:ore:uoecwp:2001-7

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George W. Evans & Roger Guesnerie, 2003. "Coordination on Saddle-Path Solutions: The Eductive Viewpoint -- Linear Multivariate Models," University of Oregon Economics Department Working Papers 2003-28, University of Oregon Economics Department, revised 25 Jan 2005. [Downloadable!]
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