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Random Matching and Aggregate Uncertainty

  • Molzon, Robert
  • Puzzello, Daniela

Random matching is often used in economic models as a means of introducing uncertainty in sequential decision problems. We show that random matching schemes that satisfy standard conditions on proportionality are not unique. Two examples show that in a simple growth model, radically di¤erent optimal behavior can result from distinct matching schemes satisfying identical proportionality conditions. That is, non-uniqueness has interesting economic implications since it a¤ects the reward and the transi- tion structures. We propose information entropy as a natural method for selecting unique matching structures for these models. Next, we give conditions on the reward and transition structures of sequential decision models under which the models are not a¤ected by non-uniqueness of the matching scheme.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8603.

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Date of creation: 2008
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Handle: RePEc:pra:mprapa:8603
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  1. Ricardo Lagos & Randall Wright, 2004. "A unified framework for monetary theory and policy analysis," Staff Report 346, Federal Reserve Bank of Minneapolis.
  2. Aliprantis, C. D. & Camera, G. & Puzzelo, D., 2004. "A Random Matching Theory," Purdue University Economics Working Papers 1168, Purdue University, Department of Economics.
  3. Alos-Ferrer, C., 1998. "Dynamic Systems with a Continuum of Randomly Matched Agents," Papers 9801, Washington St. Louis - School of Business and Political Economy.
  4. Charalambos D Aliprantis & Gabriele Camera & Daniela Puzzello, 2007. "Contagion Equilibria in a Monetary Model," Econometrica, Econometric Society, vol. 75(1), pages 277-282, 01.
  5. Jack Ochs & John Duffy, 1999. "Emergence of Money as a Medium of Exchange: An Experimental Study," American Economic Review, American Economic Association, vol. 89(4), pages 847-877, September.
  6. Itzhak Gilboa & Akihiko Matsui, 1990. "A Model of Random Matching," Discussion Papers 887, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Boylan, Richard T., 1992. "Laws of large numbers for dynamical systems with randomly matched individuals," Journal of Economic Theory, Elsevier, vol. 57(2), pages 473-504, August.
  8. Brown, Paul M., 1996. "Experimental evidence on money as a medium of exchange," Journal of Economic Dynamics and Control, Elsevier, vol. 20(4), pages 583-600, April.
  9. Michi Kandori, 2010. "Social Norms and Community Enforcement," Levine's Working Paper Archive 630, David K. Levine.
  10. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
  11. Charalambos Aliprantis & Gabriele Camera & Daniela Puzzello, 2006. "Matching and anonymity," Economic Theory, Springer, vol. 29(2), pages 415-432, October.
  12. Judd, Kenneth L., 1985. "The law of large numbers with a continuum of IID random variables," Journal of Economic Theory, Elsevier, vol. 35(1), pages 19-25, February.
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