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Walrasian Sequential Equilibrium, Bounded Rationality, And Social Experiments

  • XIAOKAI YANG

    (Department of Economics, Monask University, Clayton, Victoria, Australia 3800, Australia)

  • SHUNTIAN YAO

    ()

    (Division of Applied Economics, Nanyang Business School, Nanyang Technological University, Singapore 639798, Singapore)

In the paper, the concept of Walrasian sequential equilibrium is developed to formalize the notions of fundamental social and endogenous uncertainties and decentralized social learning. It predicts that social sequential experiments with efficient as well as inefficient network patterns of division of labour can gradually acquire organization information for society as a whole. The experiment process is decentralized and based on individuals' bounded rationality. In this process, each individual never knows the others' characteristics, although all players collectively learn abstract organization information conveyed by price signals gradually. This paper proves an existence theorem of equilibrium for a general class of well-closed Walrasian sequential equilibrium models and avoids the recursive paradox in the presence of individual bounded rationality.

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Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Division of Labor & Transaction Costs.

Volume (Year): 01 (2005)
Issue (Month): 01 ()
Pages: 73-98

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Handle: RePEc:wsi:dltcxx:v:01:y:2005:i:01:p:73-98
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