We consider a sequential equilibrium model over two periods, during the first of which agents have perfect information and their expectations are formed as if there were complete future markets. We show that, in the second period, equilibrium prices may well be different from those expected, without any unexpected change having occurred. This result highlights a lack of correspondence between the perfect foresight hypothesis and that of complete markets.
Fratini, S.M., Levrero, E.S. (2009). A remark on the supposed equivalence between complete markets and perfect foresight hypothesis.
A remark on the supposed equivalence between complete markets and perfect foresight hypothesis
FRATINI, SAVERIO MARIA;LEVRERO, Enrico Sergio
2009-01-01
Abstract
We consider a sequential equilibrium model over two periods, during the first of which agents have perfect information and their expectations are formed as if there were complete future markets. We show that, in the second period, equilibrium prices may well be different from those expected, without any unexpected change having occurred. This result highlights a lack of correspondence between the perfect foresight hypothesis and that of complete markets.File in questo prodotto:
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