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Ignorance is bliss: rationality, information and equilibrium

  • Sylvain Barde

    (University of Kent)

An information-theoretic thought experiment is developed to provide a methodology for predicting endowment distributions in the absence of information on agent preferences. The allocation problem is first presented as a stylised knapsack problem. Although this knapsack allocation is intractable, the social planner can nevertheless make precise predictions concerning the endowment distribution by using its information-theoretic structure. By construction these predictions do not rest on the rationality of agents. It is also shown, however, that the knapsack problem is equivalent to a congestion game under weak assumptions, which means that the planner can nevertheless evaluate the optimality of the unobserved allocation.

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File URL: http://www.ofce.sciences-po.fr/pdf/dtravail/WP2011-04.pdf
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Paper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2011-04.

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Date of creation: Mar 2011
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Handle: RePEc:fce:doctra:1104
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  1. Foley Duncan K., 1994. "A Statistical Equilibrium Theory of Markets," Journal of Economic Theory, Elsevier, vol. 62(2), pages 321-345, April.
  2. Debreu, Gerard, 1974. "Excess demand functions," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 15-21, March.
  3. Sonnenschein, Hugo, 1972. "Market Excess Demand Functions," Econometrica, Econometric Society, vol. 40(3), pages 549-63, May.
  4. Alexis Toda, 2010. "Existence of a statistical equilibrium for an economy with endogenous offer sets," Economic Theory, Springer, vol. 45(3), pages 379-415, December.
  5. Mhand Hifi & Slim Sadfi & Abdelkader Sbihi, 2004. "An exact algorithm for the multiple-choice multidimensional knapsack problem," Cahiers de la Maison des Sciences Economiques b04024, Université Panthéon-Sorbonne (Paris 1).
  6. Mantel, Rolf R., 1974. "On the characterization of aggregate excess demand," Journal of Economic Theory, Elsevier, vol. 7(3), pages 348-353, March.
  7. Gode, Dhananjay K & Sunder, Shyam, 1993. "Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 119-37, February.
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