Walrasian Sequential Equilibrium, Bounded Rationality, and Social Experiments
Division of Labour & Transaction Costs (DLTC): A Journal for the Society of Inframarginal Economics, Vol. 1, Issue 1, pp. 73-98, 2005
Posted: 21 Oct 2009
There are 2 versions of this paper
Walrasian Sequential Equilibrium, Bounded Rationality, and Social Experiments
Date Written: June 2005
Abstract
In the paper, the concept of Walrasian sequential equilibrium is developed to formalize the notions of fundamental social and endogenous uncertainties and decentralized social learning. It predicts that social sequential experiments with efficient as well as inefficient network patterns of division of labour can gradually acquire organization information for society as a whole. The experiment process is decentralized and based on individuals' bounded rationality. In this process, each individual never knows the others' characteristics, although all players collectively learn abstract organization information conveyed by price signals gradually. This paper proves an existence theorem of equilibrium for a general class of well-closed Walrasian sequential equilibrium models and avoids the recursive paradox in the presence of individual bounded rationality.
Keywords: Walrasian sequential equilibrium, division of labour, bounded rationality, social experiments
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Xiaokai Yang
Monash University - Department of Economics ( email )
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