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Non-implementation of rational expectations as a perfect Bayesian equilibrium

Author

Listed:
  • Dionysius Glycopantis

    ()

  • Allan Muir

    ()

  • Nicholas Yannelis

    ()

Abstract

We point out several conceptual difficulties of the rational expectations equilibrium concept. In particular we show that such an equilibrium need not be incentive compatible and need not be implementable as a perfect Bayesian equilibrium . A comparison of rational expectations equilibria with the private core is also provided. We conclude that the private core is a more appropriate concept to capture the idea of contracts under asymmetric information. Copyright Springer-Verlag Berlin/Heidelberg 2005

Suggested Citation

  • Dionysius Glycopantis & Allan Muir & Nicholas Yannelis, 2005. "Non-implementation of rational expectations as a perfect Bayesian equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(4), pages 765-791, November.
  • Handle: RePEc:spr:joecth:v:26:y:2005:i:4:p:765-791
    DOI: 10.1007/s00199-004-0585-2
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    Citations

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    Cited by:

    1. Sun, Yeneng & Wu, Lei & Yannelis, Nicholas C., 2012. "Existence, incentive compatibility and efficiency of the rational expectations equilibrium," Games and Economic Behavior, Elsevier, vol. 76(1), pages 329-339.
    2. Jamsheed Shorish, 2010. "Functional rational expectations equilibria in market games," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 43(3), pages 351-376, June.
    3. Marialaura Pesce & Peter Cramton & Nicholas C. Yannelis, 2010. "A new perspective to rational expectations: maximin rational expectations equilibrium," Discussion Papers 1528, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    4. Correia-da-Silva, João & Hervés-Beloso, Carlos, 2008. "Subjective expectations equilibrium in economies with uncertain delivery," Journal of Mathematical Economics, Elsevier, vol. 44(7-8), pages 641-650, July.
    5. Dionysius Glycopantis & Allan Muir & Nicholas Yannelis, 2009. "On non-revealing rational expectations equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 38(2), pages 351-369, February.
    6. Yeneng Sun & Lei Wu & Nicholas C. Yannelis, 2011. "Existence, Incentive Compatibility and Efficiency of the Rational Expectations Equilibrium," The School of Economics Discussion Paper Series 1108, Economics, The University of Manchester.
    7. Anuj Bhowmik & Jiling Cao, 2016. "Rational expectations equilibria: existence and representation," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(2), pages 367-386, October.
    8. Xiaojuan Hu & Cheng-Zhong Qin, 2013. "Information acquisition and welfare effect in a model of competitive financial markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(1), pages 199-210, September.
    9. Erik Balder & Nicholas Yannelis, 2009. "Bayesian–Walrasian equilibria: beyond the rational expectations equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 38(2), pages 385-397, February.

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