We introduce a notion of behavioral competitive equilibrium (BCE), to study house-holds' inability to tailor their consumption to the state of the economy. Our notion is motivated by limited cognitive ability (in particular attention, memory, and complexity) and it maintains the complete market...

A behavioral competitive equilibrium restricts households ability to tailor their consumption to the state of the economy. Compared to standard competitive equilibrium, a behavioral competitive equilibrium yields more consumption risk and extreme price volatility when the realized output is near...

We introduce and analyze expected uncertain utility (EUU) theory. A prior and an interval utility characterize an EUU decision maker. The decision maker transforms each uncertain prospect into an interval‐valued prospect that assigns an interval of prizes to each state. She then ranks...