E–stability and stability of adaptive learning in models with asymmetric information
The paper demonstrates how the E–stability principle introduced by Evans and Honkapohja  can be applied to models with heterogeneous and private information in order to assess the stability of rational expectations equilibria under learning. The paper extends already known stability results for the Grossman and Stiglitz  model to a more general case with many differentially informed agents and to the case where information is endogenously acquired by optimizing agents. In both cases it turns out that the rational expectations equilibrium of the model is inherently E-stable and thus locally stable under recursive least squares learning.
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- Verrecchia, Robert E, 1982. "Information Acquisition in a Noisy Rational Expectations Economy," Econometrica, Econometric Society, vol. 50(6), pages 1415-30, November.
- Roger Guesnerie, 2005.
"Assessing Rational Expectations 2: "Eductive" Stability in Economics,"
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The MIT Press,
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- Routledge, Bryan R, 1999. "Adaptive Learning in Financial Markets," Review of Financial Studies, Society for Financial Studies, vol. 12(5), pages 1165-1202.
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Levine's Working Paper Archive
1908, David K. Levine.
- Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
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