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On the Notion of Equilibrium when Agents Use Mis-Specified Models

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  • Tallon, J.M.

Abstract

This paper deals with equilibrium analysis in models where agents have mis-specified models of the economy. It is assumed, in a pure exchange two-period economy, that households do not necessarily agree on the list of possible states of nature. Each will thus express a demand based on a particular model of the economy, that is internally consistent (i.e., in which the rational expectations assumption is made). An equilibrium in this setup is defined to be a temporary equilibrium at which the observed price is consistent with all agents' models and clears markets. Thus, at an equilibrium, agents cannot infer from the observed price that their model is mis-specified. Examples illustrate this equilibrium concept
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Suggested Citation

  • Tallon, J.M., 1994. "On the Notion of Equilibrium when Agents Use Mis-Specified Models," Papiers d'Economie Mathématique et Applications 94.26, Université Panthéon-Sorbonne (Paris 1).
    • Handle: RePEc:fth:pariem:94.26
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    Keywords

    ECONOMIC THEORY; ECONOMIC EQUILIBRIUM;

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