On the Limit Points of an Infinitely Repeated Rational Expectations Equilibrium

Marialaura Pesce, Niccolo Urbinati () and Nicholas C. Yannelis ()
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Niccolo Urbinati: Università Ca Foscari Venezia
Nicholas C. Yannelis: The University of Iowa

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: We show that a symmetric information Rational Expectations Equilibrium (REE) exists universally (and not generically), it is Pareto efficient and obviously incentive compatible. Agents, in a repeated economy framework, can reach a symmetric information REE (i.e., an efficient and incentive compatible equilibrium outcome) by observing the past asymmetric REE and also by updating their private information. We also prove the converse result, i.e., given a symmetric information REE, we can construct a sequence of approximate asymmetric REE allocations that converges to the symmetric information REE. The approximate REE can be interpreted as the mistakes that agents make due to bounded rationality, nonetheless, in the limit an exact symmetric information REE is reached. In view of the above results, the symmetric information REE provides a rationalization for the asymmetric one.

Keywords: Learning; Rational expectations equilibrium; Asymmetric information; Stability. (search for similar items in EconPapers)
Date: 2023-06-01
New Economics Papers: this item is included in nep-mic and nep-upt
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Citations: View citations in EconPapers (1)

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