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dc.contributor.authorBen-Porath, Elchananen_US
dc.contributor.authorHeifetz, Aviaden_US
dc.date.accessioned2010-10-21en_US
dc.date.accessioned2012-07-12T12:33:53Z-
dc.date.available2012-07-12T12:33:53Z-
dc.date.issued2010en_US
dc.identifier.urihttp://hdl.handle.net/10419/59650-
dc.description.abstractConsider an exchange economy with asymmetric information. What is the set of outcomes that are consistent with common knowledge of rationality and market clearing? To address this question we define an epistemic model for the economy that provides a complete description not only of the beliefs of each agent on the relationship between states of nature and prices but also of the whole system of interactive beliefs. The main result, theorem 1, provides a characterization of outcomes that are consistent with common knowledge of rationality and market clearing (henceforth, CKRMC outcomes) in terms of a solution notion - Ex-Post Rationalizability - that is defined directly in terms of the parameters that define the economy. We then apply theorem 1 to characterize the set of CKRMC outcomes in a general class of economies with two commodities. CKRMC manifests several intuitive properties that stand in contrast to the full revelation property of Rational Expectations Equilibrium: In particular, we obtain that for a robust class of economies: (1) there is a continuum of prices that are consistent with CKRMC in every state of nature, and hence these prices do not reveal the true state, (2) the range of CKRMC outcomes is monotonically decreasing as agents become more informed about the economic fundamentals, and (3) trade is consistent with common knowledge of rationality and market clearing even when there is common knowledge that there are no mutual gains from trade.en_US
dc.language.isoengen_US
dc.publisherNorthwestern Univ., Kellogg Graduate School of Management, Center for Mathematical Studies in Economics and Management Science Evanstonen_US
dc.relation.ispartofseriesDiscussion Paper, Center for Mathematical Studies in Economics and Management Science 1487en_US
dc.subject.jelD84en_US
dc.subject.jelD50en_US
dc.subject.ddc330en_US
dc.subject.keywordcommon knowledgeen_US
dc.subject.keywordrationalityen_US
dc.subject.keywordrationalizabilityen_US
dc.subject.keywordrationalizable expectationsen_US
dc.titleCommon knowledge of rationality and market clearing in economies with asymmetric informationen_US
dc.typeWorking Paperen_US
dc.identifier.ppn637357353en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen_US
Appears in Collections:Discussion Papers, Kellogg School of Management, Northwestern University

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