When Muth's Entrepreneurs Meet Schrödinger's Cat

Rodolphe Dos Santos Ferreira

No 2020-22, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France

Abstract: In his 1961 seminal paper, Muth applied his "rational expectations" hypothesis to a simple model of a competitive market for a homogeneous good produced under random shocks. The hypothesis goes beyond the Marshallian expectational approach to equilibrium in attributing to entrepreneurs the capacity to form theory-based price predictions. We find this capacity already in Cournot (1838), although in a model without explicit fundamental uncertainty. The purpose of this note is to show within the same model that oligopolistic competition adds indeterminacy, hence market uncertainty, to the picture, weakening in some sense the rational expectations hypothesis. Before equilibrium is realised, each entrepreneur stands in a hawkish-dovish superposition, very much as the Schrödinger's cat is in a dead-living superposition.

Keywords: rational expectations; market uncertainty; oligopoly; equilibrium indeterminacy; competitive toughness (search for similar items in EconPapers)
JEL-codes: B21 D43 D84 L13 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2020-05
New Economics Papers: this item is included in nep-com, nep-gth and nep-ore
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Related works:
Journal Article: When Muth’s entrepreneurs meet Schrödinger’s cat (2021)
Working Paper: When Muth’s entrepreneurs meet Schrödinger’s cat (2021)
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