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Rationalizable Information Equilibria

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  • Alexander Zimper

    (Department of Economics, University of Pretoria, Pretoria, South Africa and Kiel Institute for the World Economy)

Abstract

Rational expectations equilibria (REE) assume that the ex post equilibrium price function is able to reveal ex ante information. This paper drops the assumption of information revealing prices and instead constructs an internal reasoning process through which highly rational price-takers can infer information from other market participants under the assumption that their utility maximization problems are common knowledge. Based on this reasoning process, we introduce the novel competitive equilibrium concept of rationalizable information equilibria (RIE). Our formal analysis establishes that (i) the RIE concept amounts to a refinement of the (generalized) REE concept whereby (ii) REE with interior net-trades are generically RIE.

Suggested Citation

  • Alexander Zimper, 2017. "Rationalizable Information Equilibria," Working Papers 201745, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201745
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    References listed on IDEAS

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    More about this item

    Keywords

    General Equilibrium; Asset Exchange Economies; Asymmetric Information; Rational Expectations; Generalized Rational Expectations; Rationalizability;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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