Functional Rational Expectations Equilibria in Market Games

Jamsheed Shorish

No 186, Economics Series from Institute for Advanced Studies

Abstract: The rational expectations equilibrium has been criticized as an equilibrium concept in market game environments. Such an equilibrium may not exist generically, or it may introduce unrealistic assumptions about an economic agent's knowledge or computational ability. We define a rational expectations equilibrium as a probability measure over uncertain states of nature which exploits all available information in a market game, and which exists for almost all economies. Furthermore, if retrading is allowed, it is possible for agents to compute such a 'functional rational expectations equilibrium' using straightforward numerical fixed point algorithms.

Keywords: Market game; Rational expectations equilibrium; Bayesian updating; Learning; Computation (search for similar items in EconPapers)
JEL-codes: C63 D83 G12 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2006-02
New Economics Papers: this item is included in nep-fin and nep-gth
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https://irihs.ihs.ac.at/id/eprint/1690 First version, 2006 (application/pdf)

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Journal Article: Functional rational expectations equilibria in market games (2010)
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