An Example of Overly Revealing Rational Expectations
4 Pages Posted: 11 Oct 2012
Date Written: April 18, 2012
I give a simple example of a rational expectations equilibrium with asymmetric information that reveals an implausible amount of information. In the example, the market price contains information that no individual market participant could deduce, even by observing the behavior of other market participants. I argue that more research is needed on refinements of rational expectations with asymmetric information.
Keywords: general equilibrium, rational expectations, asymmetric information
JEL Classification: D5, D8
Suggested Citation: Suggested Citation