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Rationalizable Expectations and Sunspot Equilibria in an Overlapping-generations Economy

Author:
Frank Heinemann
published in:
Journal of Economics (Zeitschrift für Nationalökonomie)

65 (3), 1997, pp. 257-277.

Abstract

There are two theories for the treatment of marketuncertainty: Rationalizable expectations and sunspot equilibria. This paper shows how the game theoretic solution concept of rationalizable expectations can be applied to an overlapping-generations exchange economy. Some general properties of these equilibria are discussed. It is shown that rationalizable-expectations equilibria are the predictions yielded by considering sunspot equilibria in which probability beliefs may differ across individuals. This result allows for a new interpretation of sunspot equilibria and helps to understandtheir relevance.

Keywords: market uncertainty, overlapping generations, rationalexpectations, rationalizable expectations, sunspots.
JEL classifiacation: D51, D84, D90, E21.

This paper has been or will be presented at the

  • Workshop über Informationsökonomie und Allokationstheorie Universität Bonn, 21.12.1994
  • Wissenschaftliches Forschungsseminar der Fakultät für Wirtschafts- und Sozialwissenschaften der Universität Dortmund, 15.5.1995

Verein für Socialpolitik, Jahrestagung in Linz 19.-22.9.1995

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