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Ignorance is bliss: rationality, information and equilibrium

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  • Sylvain Barde

Abstract

An information-theoretic thought experiment is developed to provide a methodology for predicting endowment distributions in the absence of information on agent preferences. The allocation problem is first presented as a stylised knapsack problem. Although this knapsack allocation is intractable, the social planner can nevertheless make precise predictions concerning the endowment distribution by using its information-theoretic structure. By construction these predictions do not rest on the rationality of agents. It is also shown, however, that the knapsack problem is equivalent to a congestion game under weak assumptions, which means that the planner can nevertheless evaluate the optimality of the unobserved allocation.

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  • Sylvain Barde, 2011. "Ignorance is bliss: rationality, information and equilibrium," Studies in Economics 1103, School of Economics, University of Kent.
    • Handle: RePEc:ukc:ukcedp:1103
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    References listed on IDEAS

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    Cited by:

    1. Sylvain Barde, 2011. "Back to the future: a simple solution to schelling segregation," SciencePo Working papers Main hal-01069479, HAL.
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    More about this item

    Keywords

    Information theoretic measure; knapsack problem; congestion game; potential function;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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