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Asymmetric information in a competitive market game: Reexamining the implications of rational expectations

  • James Peck

    ()

    (Department of Economics, The Ohio State University, 1945 N. High Street, Columbus, OH 43210-1172, USA)

  • Matthew O. Jackson

    ()

    (Division of Humanities and Social Sciences 228-77, Caltech, Pasadena, CA 91125, USA)

We examine price formation in a simple static model with asymmetric information, an infinite number of risk neutral traders and no noise traders. Here we re-examine four results associated with rational expectations models relating to the existence of fully revealing equilibrium prices, the advantage of becoming informed, the costly acquisition of information, and the impossibility of having equilibrium prices with higher volatility than the underlying fundamentals.

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Article provided by Springer in its journal Economic Theory.

Volume (Year): 13 (1999)
Issue (Month): 3 ()
Pages: 603-628

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Handle: RePEc:spr:joecth:v:13:y:1999:i:3:p:603-628
Note: Received: August 27, 1997; revised version: February 11, 1998
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