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Speculative Trade Equilibria with Incorrect Price Anticipations

Alexander Zimper

No 201335, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper introduces an equilibrium concept for boundedly rational agents who base their demand-supply decisions on incorrect price anticipations. Formally, we differentiate between equilibrium and out-of-equilibrium states. If the agents attach zero prior probability to all out-of-equilibrium states, our equilibrium concept coincides with Radner's (1979) concept of rational expectations equilibria (=REE). In contrast to REE, however, there may exist strict incentives for speculative asset trade whenever boundedly rational agents regard out-of-equilibrium states as possible.

Keywords: Bounded Rationality; Speculative Trade; Rational Expectations; Incorrect Prices (search for similar items in EconPapers)
JEL-codes: D51 D53 G02 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2013-07
New Economics Papers: this item is included in nep-mic and nep-upt
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