Skip to Main content Skip to Navigation
Preprints, Working Papers, ...

Dropping rational expectations

Abstract : In [5], we proposed a general equilibrium model, with incomplete financial markets and asymmetric information, where agents forecasted prices privately without rational expectations. Consistently, they anticipated idiosyncratic sets of future prices, and elected probability laws on these sets, that we called beliefs. Under mild conditions, and di¤erently from Hart [1975] and Radner [1979], equilibrium always existed in this model, as long as agents' anticipations precluded arbitrage. The joint determination of equilibrium prices and beliefs is traditionally seen as a rational expectations' problem. Hereafter, we suggest it may be otherwise. We propose to show that agents, whose prior anticipation sets yield an arbitrage, may update their expectations from observing trade opportunities on financial markets. With no price to be observed, they eventually infer smaller arbitrage-free anticipation sets, which cannot be narrowed down any further. Once these sets are attained, equilibrium prices may change if agents change their beliefs, but they will convey the same information.
Document type :
Preprints, Working Papers, ...
Complete list of metadatas

Cited literature [8 references]  Display  Hide  Download

https://hal-univ-pau.archives-ouvertes.fr/hal-02942197
Contributor : Anne Perrin Bonraisin <>
Submitted on : Thursday, September 17, 2020 - 4:06:54 PM
Last modification on : Saturday, October 24, 2020 - 3:44:05 AM

File

2014_2015_8docWCATT_Dropping_R...
Files produced by the author(s)

Identifiers

  • HAL Id : hal-02942197, version 1

Citation

Lionel Boisdeffre. Dropping rational expectations. 2015. ⟨hal-02942197⟩

Share

Metrics

Record views

7

Files downloads

7