Sequential equilibrium without rational expectations of prices: A theorem of full existence

Lionel de Boisdeffre ()
Additional contact information
Lionel de Boisdeffre: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: We consider a pure exchange economy, where agents, typically asymmetrically informed, exchange securities, on financial markets and commodities, on spot markets. Consumers have private characteristics, anticipations and beliefs and no model to forecast prices. They are dispensed with rational expectation and bounded rationality assumptions, such as Radner's (1972, 1979), Kurz' (1994) or Koutsougeras-Yannelis' (1999). We show that they face an incompressible uncertainty represented by a so-called "minimum uncertainty set". This uncertainty typically adds to the exogenous one, on the state of nature, an ‘endogenous uncertainty' over future spot prices. At equilibrium, all agents expect the ‘true' price on every spot market as a possible outcome and elect optimal strategies, ex ante, which clear on all markets ex post. We show this sequential equilibrium exists whenever agents' prior anticipations embed the minimum uncertainty set. This outcome differs from the standard generic existence results of Hart (1975), Radner (1979) and Duffie-Shaffer (1985), among others, based on the rational expectations of prices.

Keywords: sequential equilibrium; temporary equilibrium; perfect foresight; existence; rational exceptations; financial markets; asymmetric information; arbitrage (search for similar items in EconPapers)
Date: 2018-06
New Economics Papers: this item is included in nep-mic and nep-upt
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01593567v2
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in 2018

Downloads: (external link)
https://shs.hal.science/halshs-01593567v2/document (application/pdf)

Related works:
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:hal:cesptp:halshs-01593567

Access Statistics for this paper

More papers in Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL
Bibliographic data for series maintained by CCSD ().