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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.")

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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File URL: http://economics.uoregon.edu/papers/UO-2001-7_Evans_Coordination.pdf
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Bibliographic Info

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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Web page: http://economics.uoregon.edu/
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Cited by:
  1. William R. Parke & George A. Waters, 2011. "On the Evolutionary Stability of Rational Expectations," Working Paper Series 20111002, Illinois State University, Department of Economics.
  2. Richard Dennis & Tatiana Kirsanova, 2010. "Expectations traps and coordination failures: selecting among multiple discretionary equilibria," Working Paper Series 2010-02, Federal Reserve Bank of San Francisco.

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