Speculative Trade Equilibria with Incorrect Price Anticipations
No 201335, Working Papers from University of Pretoria, Department of Economics
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
New Economics Papers: this item is included in nep-mic and nep-upt
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Working Paper: Speculative Trade Equilibria with Incorrect Price Anticipations (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201335
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