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The Revelation of Information and Self-Fulfilling Beliefs

  • DUTTA, Jayasri

    (Faculty of Economics and Politics, University of Cambridge)

  • MORRIS, Stephen

    (Department of Economics, University of Pennsylvania)

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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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1995076.

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Date of creation: 01 Dec 1995
Date of revision:
Handle: RePEc:cor:louvco:1995076
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  1. John Geanakoplos & Andreu Mas-Colell, 1985. "Real Indeterminacy with Financial Assets," Cowles Foundation Discussion Papers 770R, Cowles Foundation for Research in Economics, Yale University, revised Oct 1985.
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  13. ALLEN, Beth & DUTTAÂ , Jayasri & POLEMARCHAKISÂ , Heracles, 1994. "Equilibrium Selections," CORE Discussion Papers 1994071, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  14. Townsend, Robert M, 1978. "Market Anticipations, Rational Expectations, and Bayesian Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(2), pages 481-94, June.
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  17. Beth Allen & Jayasri Dutta & Haraklis M. Polemarchakis, 1994. "Equilibrium selections," Discussion Paper / Institute for Empirical Macroeconomics 90, Federal Reserve Bank of Minneapolis.
  18. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
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