IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Ex ante versus Interim Rationality and the Existence of Bubbles

  • Bhattacharyya, Sugato
  • Lipman, Barton L

Tirole (1982) is commonly interpreted as proving that bubbles are impossible with finitely many rational traders with common priors. We study a simple variation of his model in which bubbles can occur, even though traders have common priors and common knowledge that the asset has no fundamental value. In equilibrium, agents purchase the asset at successively higher prices until the bubble "bursts" and no subsequent trade occurs. Each trader's initial wealth determines the last date at which he could possibly trade. The date at which the bubble bursts is a function of these finite "truncation dates" for the individual traders. Since initial wealth is private information, no trader knows when the bubble will burst. There are two key differences between our model and Tirole's which enable us to construct equilibrium bubbles this way. First, Tirole requires ex ante optimality, while we only require every trader's strategy to be optimal conditional on his information-i.e., interim optimal. As we argue in the text, this would seem to be the relevant definition of optimality. Second, Tirole considers competitive equilibria, while we analyze a simple bargaining game.

(This abstract was borrowed from another version of this item.)

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Article provided by Springer in its journal Economic Theory.

Volume (Year): 6 (1995)
Issue (Month): 3 (November)
Pages: 469-94

as
in new window

Handle: RePEc:spr:joecth:v:6:y:1995:i:3:p:469-94
Contact details of provider: Web page: http://link.springer.de/link/service/journals/00199/index.htm

Order Information: Web: http://link.springer.de/orders.htm

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:spr:joecth:v:6:y:1995:i:3:p:469-94. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)

or (Christopher F Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.