Title: The perfect foresight assumption revisited: the existence of sequential equilibrium with price uncertainty
Abstract: Our earlier papers had extended to asymmetric information some classical existence theorems of general theory, under the standard assumption that agents had perfect foresights, that is, they knew at the outset which price would prevail tomorrow on each spot market. Yet, observation suggests that agents more often trade with an un-precise knowledge of future prices. Hereafter, we let agents anticipate, in each random state, an idiosyncratic set of plausible prices, called price expectations, which overlap across agents on each spot market. A state is reached when agents have expectations, which include true spot prices, and make decisions at the first period, which are optimal within the budget set and clear on all markets ex post. In an earlier model with finitely many expectations, we showed the existence of this so-called correct foresights equilibrium was characterized by the no-arbitrage condition of finance. We now extend this result to the case of infinite price expectations' sets and continuous probability distributions.
Publication Year: 2009
Publication Date: 2009-02-01
Language: en
Type: preprint
Access and Citation
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot