IDEAS home Printed from https://ideas.repec.org/p/hal/cesptp/halshs-00747899.html
   My bibliography  Save this paper

Learning by Trading in Infinite Horizon Strategic Market Games with Default

Author

Listed:
  • Sonja Brangewitz

    () (University of Paderborn - Department of Business Administration and Economics)

  • Gaël Giraud

    () (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)

Abstract

We study the consequences of dropping the perfect competition assumption in a standard infinite horizon model with infinitely-lived traders and real collateralized assets, together with one additional ingredient : information among players is asymmetric and monitoring is incomplete. The key insight is that trading assets is not only a way to hedge oneself against uncertainty and to smooth consumption across time : it also enables learning information. Conversely, defaulting now becomes strategic : certain players may manipulate prices so as to provoke a default in order to prevent their opponents from learning. We focus on learning equilibria, at the end of which no player has incorrect beliefs -- not because those players with heterogeneous beliefs were eliminated from the market (although default is possible at equilibrium) but because they have taken time to update their prior belief. We prove a partial Folk theorem à la Wiseman (2011) of the following form : for any function that maps each state of the world to a sequence of feasible and strongly individually rational allocations, and for any degree of precision, there is a perfect Bayesian equilibrium in which patient players learn the realized state with this degree of precision and achieve a payoff close to the one specified for each state.

Suggested Citation

  • Sonja Brangewitz & Gaël Giraud, 2012. "Learning by Trading in Infinite Horizon Strategic Market Games with Default," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00747899, HAL.
  • Handle: RePEc:hal:cesptp:halshs-00747899
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00747899
    as

    Download full text from publisher

    File URL: https://halshs.archives-ouvertes.fr/halshs-00747899/document
    Download Restriction: no

    References listed on IDEAS

    as
    1. Sergiu Hart, 1985. "Nonzero-Sum Two-Person Repeated Games with Incomplete Information," Mathematics of Operations Research, INFORMS, vol. 10(1), pages 117-153, February.
    2. repec:cor:louvrp:-636 is not listed on IDEAS
    3. Harker, Patrick T., 1991. "Generalized Nash games and quasi-variational inequalities," European Journal of Operational Research, Elsevier, vol. 54(1), pages 81-94, September.
    Full references (including those not matched with items on IDEAS)

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:cesptp:halshs-00747899. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.