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"The Revelation of Information and Self-Fulfilling Beliefs''

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  • Jayasri Dutta
  • Stephen Morris

Abstract

At a Rational Expectations Equilibrium (REE), individuals are assumed to know the map from states to prices. This hypothesis has two components, that agents agree (consensus), and that they have point expectations (degeneracy). We consider economies where agents' beliefs are described by a joint distribution on states and prices, and these beliefs are fulfilled at equilibrium. Beliefs are self-fulfilling if every price in the support of the distribution is an equilibrium price. The corresponding equilibria are Beliefs Equilibria (BE). The further restriction that agents have the same beliefs results in Common Beliefs Equilibria (CBE). We study the relationship between BE, CBE, and REE, thus isolating the role of consensus and of degeneracy in achieving rational expectations.
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Suggested Citation

  • Jayasri Dutta & Stephen Morris, "undated". ""The Revelation of Information and Self-Fulfilling Beliefs''," CARESS Working Papres 95-03, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  • Handle: RePEc:wop:pennca:95-03
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    References listed on IDEAS

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    Cited by:

    1. João Correia-da-Silva, 2015. "Two-period economies with price-contingent deliveries," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 59(3), pages 509-525, August.
    2. Elchanan Ben-Porath, 2007. "Trade with Heterogeneous Beliefs," Discussion Paper Series dp462, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    3. Gabriel Desgranges, 2000. "CK-Equilibria and Informational Efficiency in a Competitive Economy," Econometric Society World Congress 2000 Contributed Papers 1296, Econometric Society.
    4. DeMarzo, Peter & Skiadas, Costis, 1998. "Aggregation, Determinacy, and Informational Efficiency for a Class of Economies with Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 80(1), pages 123-152, May.
    5. Elchanan Ben-Porath & Aviad Heifetz, 2007. "Rationalizable Expectations," Levine's Bibliography 122247000000001499, UCLA Department of Economics.
    6. Michael Zierhut, 2016. "Partially revealing rational expectations equilibrium with real assets and binding constraints," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(3), pages 495-516, August.
    7. Krebs, Tom, 2001. "Endogenous probabilities and the information revealed by prices," Journal of Mathematical Economics, Elsevier, vol. 36(1), pages 1-18, September.
    8. Michael Ostrovsky, 2012. "Information Aggregation in Dynamic Markets With Strategic Traders," Econometrica, Econometric Society, vol. 80(6), pages 2595-2647, November.
    9. Felipe Zurita, 2001. "Speculation in Financial Markets: A Survey," Documentos de Trabajo 197, Instituto de Economia. Pontificia Universidad Católica de Chile..
    10. Heifetz, Aviad & Polemarchakis, Heracles M., 1998. "Partial Revelation with Rational Expectations," Journal of Economic Theory, Elsevier, vol. 80(1), pages 171-181, May.
    11. Beaudry, Paul & Gonzalez, Francisco M., 2003. "An equilibrium analysis of information aggregation and fluctuations in markets with discrete decisions," Journal of Economic Theory, Elsevier, vol. 113(1), pages 76-103, November.
    12. Herakles Polemarchakis, 2015. "Markets and Efficiency," The Japanese Economic Review, Japanese Economic Association, vol. 66(2), pages 150-166, June.
    13. Pietra, Tito & Siconolfi, Paolo, 2008. "Trade and revelation of information," Journal of Economic Theory, Elsevier, vol. 138(1), pages 132-164, January.
    14. P. Herings & Kirsten Rohde, 2006. "Time-inconsistent preferences in a general equilibrium model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(3), pages 591-619, November.
    15. Arrow, Kenneth J. & Hahn, Frank, 1999. "Notes on Sequence Economies, Transaction Costs, and Uncertainty," Journal of Economic Theory, Elsevier, vol. 86(2), pages 203-218, June.
    16. Ben-Porath, Elchanan & Heifetz, Aviad, 2011. "Common knowledge of rationality and market clearing in economies with asymmetric information," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2608-2626.
    17. Le Van, Cuong & Navrouzoglou, Paulina & Vailakis, Yiannis, 2019. "On endogenous formation of price expectations," Games and Economic Behavior, Elsevier, vol. 115(C), pages 436-458.
    18. Elchanan Ben-Porath & Aviad Heifetz, 2005. "Rationalizable Expectations," Economics Working Papers 0057, Institute for Advanced Study, School of Social Science.
    19. Pietra, Tito & Siconolfi, Paolo, 1997. "Extrinsic Uncertainty and the Informational Role of Prices," Journal of Economic Theory, Elsevier, vol. 77(1), pages 154-180, November.
    20. Elchanan Ben-Porath, 2007. "Trade with Heterogeneous Beliefs," Levine's Bibliography 122247000000001494, UCLA Department of Economics.
    21. Jayasri Dutta & Herakles Polemarchakis, 2012. "Comment on "Sovereign Bailouts and Senior Loans"," NBER Chapters, in: NBER International Seminar on Macroeconomics 2012, pages 292-297, National Bureau of Economic Research, Inc.
    22. de Boisdeffre, Lionel, 2022. "Dropping rational expectations," Mathematical Social Sciences, Elsevier, vol. 115(C), pages 37-46.

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