Are rational expectations equilibria with private information eductively stable?
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In: Journal of Economics, Vol. 82, No. 2, 01.06.2004, p. 169-194.
Research output: Journal contributions › Journal articles › Research › peer-review
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TY - JOUR
T1 - Are rational expectations equilibria with private information eductively stable?
AU - Heinemann, M
PY - 2004/6/1
Y1 - 2004/6/1
N2 - The paper derives conditions for eductive stability of rational expectations equilibria in simple linear economic models with private information. Following Guesnerie (1992; 2002), the concept of eductive stability is used. It is shown that even in a private information setting, rational expectations equilibria might be justified as a result of mental process of reasoning of the agents. The paper considers an equilibrium concept, where the agents are unable to condition their forecasts on the actual market price. It is shown that eductive stability in this case requires that a condition is satisfied that is also relevant in the symmetric information case. This condition is compared to the respective stability condition that must hold if agents are able to use the current market price as an additional source of information. It turns out that the conditions for eductive stability that emerge under both equilibrium concepts differ.
AB - The paper derives conditions for eductive stability of rational expectations equilibria in simple linear economic models with private information. Following Guesnerie (1992; 2002), the concept of eductive stability is used. It is shown that even in a private information setting, rational expectations equilibria might be justified as a result of mental process of reasoning of the agents. The paper considers an equilibrium concept, where the agents are unable to condition their forecasts on the actual market price. It is shown that eductive stability in this case requires that a condition is satisfied that is also relevant in the symmetric information case. This condition is compared to the respective stability condition that must hold if agents are able to use the current market price as an additional source of information. It turns out that the conditions for eductive stability that emerge under both equilibrium concepts differ.
KW - Economics
KW - rational expectations
KW - private information
KW - eductive stability
U2 - 10.1007/s00712-003-0046-6
DO - 10.1007/s00712-003-0046-6
M3 - Journal articles
VL - 82
SP - 169
EP - 194
JO - Journal of Economics
JF - Journal of Economics
SN - 0931-8658
IS - 2
ER -