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|
|Contact details of provider:|| Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA|
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|Order Information:|| Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA|
References listed on IDEAS
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- Dubey, Pradeep & Mas-Colell, Andreau & Shubik, Martin, 1980. "Efficiency properties of strategies market games: An axiomatic approach," Journal of Economic Theory, Elsevier, vol. 22(2), pages 339-362, April.
- 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.
- Allen, Beth, 1982. "Approximate equilibria in microeconomic rational expectations models," Journal of Economic Theory, Elsevier, vol. 26(2), pages 244-260, April.
- Blume, Lawrence E. & Easley, David, 1982. "Learning to be rational," Journal of Economic Theory, Elsevier, vol. 26(2), pages 340-351, April.
- HELLWIG, Martin F., "undated".
"Rational expectations equilibrium with conditioning on past prices: a mean-variance example,"
CORE Discussion Papers RP
480, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Hellwig, Martin F., 1982. "Rational expectations equilibrium with conditioning on past prices: A mean-variance example," Journal of Economic Theory, Elsevier, vol. 26(2), pages 279-312, April.
- Pradeep Dubey & Martin Shubik, 1979. "A Strategic Market Game with Price and Quantity Strategies," Cowles Foundation Discussion Papers 521, Cowles Foundation for Research in Economics, Yale University.
- Anderson, Robert M. & Sonnenschein, Hugo, 1982. "On the existence of rational expectations equilibrium," Journal of Economic Theory, Elsevier, vol. 26(2), pages 261-278, April.
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