A new perspective to rational expectations: maximin rational expectations equilibrium

Marialaura Pesce, Peter Cramton and Nicholas C. Yannelis

No 1528, Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: We introduce a new notion of rational expectations equilibrium (REE) called maximin rational expectations equilibrium (MREE), which is based on the maximin expected utility (MEU) formulation. In particular, agents maximize maximin expected utility conditioned on their own private information and the information that the equilibrium prices generate. Maximin equilibrium allocations need not to be measurable with respect to the private information of each individual and with respect to the information that the equilibrium prices generate, as it is in the case of the Bayesian REE. We prove that a maximin REE exists universally (and not generically as in Radner (1979) and Allen (1981)), it is effcient and incentive compatible. These results are false for the Bayesian REE

Date: 2010-03-02
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Working Paper: A new perspective to rational expectations: maximin rational expectations equilibrium (2011)
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