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Functional Rational Expectations Equilibria in Market Games

  • Shorish, Jamsheed

    (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria)

The rational expectations equilibrium has been criticized as an equilibrium concept in market game environments. Such an equilibrium may not exist generically, or it may introduce unrealistic assumptions about an economic agent's knowledge or computational ability. We define a rational expectations equilibrium as a probability measure over uncertain states of nature which exploits all available information in a market game, and which exists for almost all economies. Furthermore, if retrading is allowed, it is possible for agents to compute such a 'functional rational expectations equilibrium' using straightforward numerical fixed point algorithms.

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File URL: http://www.ihs.ac.at/publications/eco/es-186.pdf
File Function: First version, 2006
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Paper provided by Institute for Advanced Studies in its series Economics Series with number 186.

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Length: 17 pages
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:ihs:ihsesp:186
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  1. Grandmont, Jean-Michel, 1993. "Temporary general equilibrium theory," Handbook of Mathematical Economics, in: K. J. Arrow & M.D. Intriligator (ed.), Handbook of Mathematical Economics, edition 4, volume 2, chapter 19, pages 879-922 Elsevier.
  2. Sanford J Grossman & Joseph E Stiglitz, 1997. "On the Impossibility of Informationally Efficient Markets," Levine's Working Paper Archive 1908, David K. Levine.
  3. Massimo Morelli & Sayantan Ghosal, 2001. "Retrading in Market Games," Working Papers 01-09, Ohio State University, Department of Economics.
  4. Martin Shubik & Nicolaas J. Vriend, 1999. "A Behavioral Approach to a Strategic Market Game," Research in Economics 99-01-003e, Santa Fe Institute.
  5. Dubey, Pradeep, 1980. "Nash equilibria of market games: Finiteness and inefficiency," Journal of Economic Theory, Elsevier, vol. 22(2), pages 363-376, April.
  6. Kelly, David L. & Shorish, Jamsheed, 2000. "Stability of Functional Rational Expectations Equilibria," Journal of Economic Theory, Elsevier, vol. 95(2), pages 215-250, December.
  7. James Peck & Matthew O. Jackson, 1999. "Asymmetric information in a competitive market game: Reexamining the implications of rational expectations," Economic Theory, Springer, vol. 13(3), pages 603-628.
  8. Dionysius Glycopantis & Allan Muir & Nicholas Yannelis, 2009. "On non-revealing rational expectations equilibrium," Economic Theory, Springer, vol. 38(2), pages 351-369, February.
  9. Martin Shubik & Pradeep Dubey & Siddhartha Sahi, 1989. "Repeated Trade and the Velocity of Money," Cowles Foundation Discussion Papers 895, Cowles Foundation for Research in Economics, Yale University.
  10. Pradeep Dubey & John Geanakoplos & Martin Shubik, 1982. "Revelation of Information in Strategic Market Games: A Critique of Rational Expectations," Cowles Foundation Discussion Papers 634R, Cowles Foundation for Research in Economics, Yale University, revised Nov 1985.
  11. Dionysius Glycopantis & Allan Muir & Nicholas Yannelis, 2005. "Non-implementation of rational expectations as a perfect Bayesian equilibrium," Economic Theory, Springer, vol. 26(4), pages 765-791, November.
  12. Townsend, Robert M, 1983. "Forecasting the Forecasts of Others," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 546-88, August.
  13. Spear, Stephen E., 1988. "Existence and local uniqueness of functional rational expectations equilibria in dynamic economic models," Journal of Economic Theory, Elsevier, vol. 44(1), pages 124-155, February.
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  15. Erik Balder & Nicholas Yannelis, 2009. "Bayesian–Walrasian equilibria: beyond the rational expectations equilibrium," Economic Theory, Springer, vol. 38(2), pages 385-397, February.
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