Coordination on Saddle Path Solutions: The Eductive Viewpoint. 1 - Linear Univariate Models

Posted: 13 Oct 2003

See all articles by George W. Evans

George W. Evans

University of Oregon - Department of Economics; University of St. Andrews - School of Economics and Finance

Roger Guesnerie

École Normale Supérieure (ENS) - Department and Laboratory of Applied and Theoretical Economics (DELTA); Ludwig Maximilian University of Munich (LMU) - Center for Economic Studies (CES)

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Abstract

We investigate local strong rationality (LSR) in a one step forward looking univariate model with memory one. Eductive arguments are used to determine when common knowledge (CK) that the solution is near some perfect foresight path is sufficient to trigger complete coordination on that path (I.e. the path is LSR). Coordination of expectations is shown to depend on three factors: the nature of the CK initial beliefs, the degree of structural heterogeneity and the information structure. Our sufficient conditions for LSR precisely reflect these features and provide basic consistent justifications for the choice of the saddle path solution.

Suggested Citation

Evans, George W. and Guesnerie, Roger, Coordination on Saddle Path Solutions: The Eductive Viewpoint. 1 - Linear Univariate Models. Available at SSRN: https://ssrn.com/abstract=458300

George W. Evans (Contact Author)

University of Oregon - Department of Economics ( email )

1285 University of Oregon
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United States
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University of St. Andrews - School of Economics and Finance ( email )

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United Kingdom
44-1334-462435 (Phone)

HOME PAGE: http://www.st-andrews.ac.uk/economics/staff/pages.g.evans.shtml

Roger Guesnerie

École Normale Supérieure (ENS) - Department and Laboratory of Applied and Theoretical Economics (DELTA) ( email )

48 Boulevard Jourdan
75014 Paris
France

Ludwig Maximilian University of Munich (LMU) - Center for Economic Studies (CES)

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Munich, 80539
Germany

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