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Ignorance is bliss: rationality, information and equilibrium

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  • Sylvain Barde

    (OFCE)

Abstract

An information-theoretic thought experiment is developed to provide a methodology for predicting endowment distributions in the absence of information on agent preferences. The allocation problem is first presented as a stylised knapsack problem. Although this knapsack allocation is intractable, the social planner can nevertheless make precise predictions concerning the endowment distribution by using its information-theoretic structure. By construction these predictions do not rest on the rationality of agents. It is also shown, however, that the knapsack problem is equivalent to a congestion game under weak assumptions, which means that the planner can nevertheless evaluate the optimality of the unobserved allocation.

Suggested Citation

  • Sylvain Barde, 2011. "Ignorance is bliss: rationality, information and equilibrium," Sciences Po publications 2011-04, Sciences Po.
  • Handle: RePEc:spo:wpmain:info:hdl:2441/5l6uh8ogmqildh09h56484hg0
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    References listed on IDEAS

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    1. Mantel, Rolf R., 1974. "On the characterization of aggregate excess demand," Journal of Economic Theory, Elsevier, vol. 7(3), pages 348-353, March.
    2. Mhand Hifi & Slim Sadfi & Abdelkader Sbihi, 2004. "An exact algorithm for the multiple-choice multidimensional knapsack problem," Cahiers de la Maison des Sciences Economiques b04024, Université Panthéon-Sorbonne (Paris 1).
    3. Foley Duncan K., 1994. "A Statistical Equilibrium Theory of Markets," Journal of Economic Theory, Elsevier, vol. 62(2), pages 321-345, April.
    4. Alexis Toda, 2010. "Existence of a statistical equilibrium for an economy with endogenous offer sets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(3), pages 379-415, December.
    5. Gode, Dhananjay K & Sunder, Shyam, 1993. "Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 119-137, February.
    6. Debreu, Gerard, 1974. "Excess demand functions," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 15-21, March.
    7. Sonnenschein, Hugo, 1972. "Market Excess Demand Functions," Econometrica, Econometric Society, vol. 40(3), pages 549-563, May.
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    Cited by:

    1. Sylvain Barde, 2011. "Back to the Future: A Simple Solution to Schelling Segregation," Studies in Economics 1104, School of Economics, University of Kent.
    2. repec:spo:wpecon:info:hdl:2441/5l6uh8ogmqildh09h5623b6bg is not listed on IDEAS

    More about this item

    Keywords

    Information theoretic measure; knapsack problem; congestion game; potential function.;

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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