Justifying Rational Expectations

CARESS Working Paper No. 95-04

15 Pages Posted: 24 Dec 2001

Date Written: March 1995

Abstract

In a static economy with symmetric information, the informational requirements for competitive equilibrium are very weak: markets clear and each agent is rational. With asymmetric information, the solution concept of competitive equilibrium has been generalized to rational expectations equilibrium. But now common knowledge of market clearing and rationality is required. This paper proves versions of these results in a formal model of knowledge.

Keywords: Rational Expectations, Common Knowledge

JEL Classification: D5, D8

Suggested Citation

Morris, Stephen Edward, Justifying Rational Expectations (March 1995). CARESS Working Paper No. 95-04, Available at SSRN: https://ssrn.com/abstract=294819 or http://dx.doi.org/10.2139/ssrn.294819

Stephen Edward Morris (Contact Author)

MIT ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

HOME PAGE: http://https://economics.mit.edu/faculty/semorris

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