Speculative Trade Equilibria with Incorrect Price Anticipations
AbstractThis paper introduces an equilibrium concept for boundedly rational agents who base their demand-supply decisions on incorrect price anticipations. Formally, we differentiate between equilibrium and out-of-equilibrium states. If the agents attach zero prior probability to all out-of-equilibrium states, our equilibrium concept coincides with Radner's (1979) concept of rational expectations equilibria (=REE). In contrast to REE, however, there may exist strict incentives for speculative asset trade whenever boundedly rational agents regard out-of-equilibrium states as possible.
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Bibliographic InfoPaper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201335.
Length: 10 pages
Date of creation: Jul 2013
Date of revision:
Bounded Rationality; Speculative Trade; Rational Expectations; Incorrect Prices;
Other versions of this item:
- Alexander Zimper, 2013. "Speculative Trade Equilibria with Incorrect Price Anticipations," Working Papers, Economic Research Southern Africa 358, Economic Research Southern Africa.
- D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
- D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
- G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-28 (All new papers)
- NEP-MIC-2013-07-28 (Microeconomics)
- NEP-UPT-2013-07-28 (Utility Models & Prospect Theory)
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- Zimper, Alexander, 2014.
"On the impossibility of insider trade in rational expectations equilibria,"
The North American Journal of Economics and Finance, Elsevier,
Elsevier, vol. 28(C), pages 109-118.
- Alexander Zimper, 2013. "On the impossibility of insider trade in rational expectations equilibria," Working Papers, Economic Research Southern Africa 399, Economic Research Southern Africa.
- Alexander Zimper, 2013. "On the impossibility of insider trade in rational expectations equilibria," Working Papers, University of Pretoria, Department of Economics 201379, University of Pretoria, Department of Economics.
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