Revelation of Information in Strategic Market Games: A Critique of Rational Expectations
We criticize the R.E.E. approach to asymmetric information general equilibrium because it does not explain how information gets "into" the prices. This leads to well-known paradoxes. We suggest a multiperiod game instead, where the flow of information into and out of prices is explicitly modeled. In our game Nash equilibria (N.E.) (1) generalize Walrasian equilibria to asymmetric information; (2) (2) exist generically; (3) eliminate pure speculation; (4) allow prices to reveal information and markets to become more efficient over time; (5) are consistent with the weak efficient markets hypothesis that tracking past prices is not profitable; (6) yet always lead to higher utility for better informed agents (such as experts). Throughout the paper we use one concrete game. In the last section we prove that there are a broad range of games that would have the same properties.
|Date of creation:||1982|
|Date of revision:||Nov 1985|
|Publication status:||Published in Journal of Mathematical Economics (1987), 16: 105-137|
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- Pradeep Dubey & Mamoru Kaneko, 1982.
"Information About Moves in Extensive Games: II,"
Cowles Foundation Discussion Papers
629, Cowles Foundation for Research in Economics, Yale University.
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CORE Discussion Papers RP
-480, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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- Blume, Lawrence E. & Easley, David, 1982. "Learning to be rational," Journal of Economic Theory, Elsevier, vol. 26(2), pages 340-351, April.
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