# Competitive Rational Expectations Equilibria without Apology

*Alexander Kovalenkov* () and
*Xavier Vives*

No 2446, CESifo Working Paper Series from CESifo

**Abstract:**
In a standard financial market model with asymmetric information with a finite number N of risk-averse informed traders, competitive rational expectations equilibria provide a good approximation to strategic equilibria as long as N is not too small: equilibrium prices in each situation converge to each other at a rate of 1/N as the market becomes large. The approximation is particularly good when the informationally adjusted risk bearing capacity of traders is not very large. This is not the case if informed traders are close to risk neutral. Both equilibria converge to the competitive equilibrium of an idealized limit continuum economy as the market becomes large at a slower rate of 1/ãN and, therefore, the limit equilibrium need not be a good approximation of the strategic equilibrium in moderately large markets.

**Keywords:** gschizophreniah problem; strategic equilibrium; large markets; information acquisition; free entry; rate of convergence (search for similar items in EconPapers)

**JEL-codes:** D41 D43 G10 G12 (search for similar items in EconPapers)

**Date:** 2008

**References:** View references in EconPapers View complete reference list from CitEc

**Citations:** View citations in EconPapers (3)

**Downloads:** (external link)

https://www.cesifo.org/DocDL/cesifo1_wp2446.pdf (application/pdf)

**Related works:**

Journal Article: Competitive rational expectations equilibria without apology (2014)

Working Paper: Competitive Rational Expectations Equilibria Without Apology (2008)

This item may be available elsewhere in EconPapers: Search for items with the same title.

**Export reference:** BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text

**Persistent link:** https://EconPapers.repec.org/RePEc:ces:ceswps:_2446

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.

Bibliographic data for series maintained by Klaus Wohlrabe ().