Sequential Equilibrium without Rational Expectations of Prices: A Theorem of Full Existence

Lionel Boisdeffre
Additional contact information
Lionel Boisdeffre: CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour

Working papers of CATT from HAL

Abstract: We consider a pure exchange economy, where agents, typically asymmetrically informed, exchange commodities, on spot markets, and securities of all kinds, on incomplete financial markets, with no model of how future prices are determined. They have private characteristics, anticipations and beliefs. We show they face an incompressible uncertainty, represented by a so-called "minimum uncertainty set", typically adding to the 'exogenous uncertainty', on tomorrow's state of nature, an 'endogenous uncertainty' on future spot prices, which may depend on every agent's private anticipations today. At equilibrium, all agents expect the 'true' price, in each realizable state, as a possible outcome, and elect optimal strategies, ex ante, which clear on all markets, ex post. Our main Theorem states that equilibrium exists as long as agents' prior anticipations, which may be refined from observing markets, embed that minimum uncertainty set. This result is stronger than the classical ones of generic existence, along Radner (1979), or Hart (1975), based on the rational expectation of prices.

Keywords: sequential equilibrium; temporary equilibrium; perfect foresight; existence; rational expectations; financial markets; asymmetric information; arbitrage (search for similar items in EconPapers)
Date: 2017-06
Note: View the original document on HAL open archive server: https://univ-pau.hal.science/hal-02938743v1
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://univ-pau.hal.science/hal-02938743v1/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:wpcatt:hal-02938743

Access Statistics for this paper

More papers in Working papers of CATT from HAL
Bibliographic data for series maintained by CATT - UPPA - Université de Pau et des Pays de l'Adour ().