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Rationalizable Information Equilibria

Author

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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

    as
    1. Radner, Roy, 1979. "Rational Expectations Equilibrium: Generic Existence and the Information Revealed by Prices," Econometrica, Econometric Society, vol. 47(3), pages 655-678, May.
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    3. Allen, Beth E, 1981. "Generic Existence of Completely Revealing Equilibria for Economies with Uncertainty when Prices Convey Information," Econometrica, Econometric Society, vol. 49(5), pages 1173-1199, September.
    4. Albert S. Kyle, 1989. "Informed Speculation with Imperfect Competition," Review of Economic Studies, Oxford University Press, vol. 56(3), pages 317-355.
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    6. Battigalli, Pierpaolo & Bonanno, Giacomo, 1999. "Recent results on belief, knowledge and the epistemic foundations of game theory," Research in Economics, Elsevier, vol. 53(2), pages 149-225, June.
    7. Tirole, Jean, 1982. "On the Possibility of Speculation under Rational Expectations," Econometrica, Econometric Society, vol. 50(5), pages 1163-1181, September.
    8. Sanford J. Grossman, 1981. "An Introduction to the Theory of Rational Expectations Under Asymmetric Information," Review of Economic Studies, Oxford University Press, vol. 48(4), pages 541-559.
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    11. Geanakoplos, John, 1990. "An introduction to general equilibrium with incomplete asset markets," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 1-38.
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    13. Sanford J. Grossman, 1977. "The Existence of Futures Markets, Noisy Rational Expectations and Informational Externalities," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 431-449.
    14. Zimper, Alexander, 2006. "Uniqueness conditions for strongly point-rationalizable solutions to games with metrizable strategy sets," Journal of Mathematical Economics, Elsevier, vol. 42(6), pages 729-751, September.
    15. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    16. Beth Allen & James S. Jordan, 1998. "The existence of rational expectations equilibrium: a retrospective," Staff Report 252, Federal Reserve Bank of Minneapolis.
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    More about this item

    Keywords

    General Equilibrium; Asset Exchange Economies; Asymmetric Information; Rational Expectations; Generalized Rational Expectations; Rationalizability;

    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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