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Informational Smallness in Rational Expectations Equilibria

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  • HEIFETZ, Aviad

    (School of Mathematical Sciences, Tel Aviv University, Tel Aviv, Israel)

  • MINELLI, Enrico

    (CORE, Université catholique de Louvain and Universita di Brescia, Italy)

Abstract

In an economy with asymmetric information, Rational Expectations Equilibria (REE) need not become asymptotically incentive compatible, even if many independent replicas of the economy are merged together. We identify a sub-class of REE for which this is nevertheless the case. It consists of those REE which are focused - where close prices obtain in close state-wise posterior economies; and where the prices are rounded to whole "cents", so that very close exact prices cannot be distinguished. In this class of REE, the informational power of each agent does diminish as more and more similar agents join the market. In the limit economy with a continuum of replicas, the informational power of each individual is nullified completely in focused REE.

Suggested Citation

  • HEIFETZ, Aviad & MINELLI, Enrico, 1996. "Informational Smallness in Rational Expectations Equilibria," LIDAM Discussion Papers CORE 1996029, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:1996029
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    References listed on IDEAS

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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.
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    3. Krasa, Stefan & Shafer, Wayne, 2001. "Informational Robustness of Competitive Equilibria," Journal of Economic Theory, Elsevier, vol. 101(2), pages 494-518, December.
    4. Huang, Xuesong, 2021. "Incentive compatible self-fulfilling mechanisms and rational expectations," Games and Economic Behavior, Elsevier, vol. 126(C), pages 100-135.

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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