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Economic theory reduces the concept of rationality to internal consistency. As far as beliefs are concerned, rationality is equated with having a prior belief over a “Grand State Space”, describing all possible sources of uncertainties. We argue that this notion is too weak in some senses...
Persistent link: https://www.econbiz.de/10005126724
We examine contemporaneous perfect epsilon-equilibria, in which a player’s actions after every history, evaluated at the point of deviation from the equilibrium, must be within epsilon of a best response. This concept implies, but is stronger than, Radner’s ex ante perfect...
Persistent link: https://www.econbiz.de/10005126726
We posit that the value of a manager’s human capital depends on the firm’s business strategy. The resulting interaction between business strategy and managerial incentives affects the organization of business activities, both the internal organization of the firm and the determination of...
Persistent link: https://www.econbiz.de/10005150194
It is well-known that the ability of the Vickrey-Clarke-Groves (VCG) mechanism to implement efficient outcomes for private value choice problems does not extend to interdependent value problems. When an agent’s type affects other agents’ utilities, it may not be incentive compatible for him...
Persistent link: https://www.econbiz.de/10005150196
We present a model incorporating both social and economic components, and analyze their interaction. The notion of a social asset, an attribute that has value only because of the social institutions governing society, is introduced. In the basic model, agents match on the basis of income and...
Persistent link: https://www.econbiz.de/10005150205
People may be surprised by noticing certain regularities that hold in existing knowledge they have had for some time. That is, they may learn without getting new factual information. We argue that this can be partly explained by computational complexity. We show that, given a knowledge base,...
Persistent link: https://www.econbiz.de/10005150211
We study economies with multiple assets that are valued both for their return and liquidity. Exchange occurs in decentralized markets with frictions making a medium of exchange essential. Some assets are better suited for this role because they are more liquid - more likely to be accepted in...
Persistent link: https://www.econbiz.de/10005150220
In McLean and Postlewaite (2002), we analyzed pure exchange economies with asymmetrically informed agents. We defined a notion of informational size and showed that, when the aggregate information of all agents resolves nearly all the uncertainty regarding the state of nature, the conflict...
Persistent link: https://www.econbiz.de/10005150221
We study transactions that require investments before trading in a competitive market, when forward contracts fixing the transaction price are absent. We show that, despite the market being perfectly competitive and subject to arbitrarily little uncertainty, the inability to jointly determine...
Persistent link: https://www.econbiz.de/10005150224
Economic theory reduces the concept of rationality to internal consistency. The practice of economics, however, distinguishes between rational and irrational beliefs. There is therefore an interest in a theory of rational beliefs, and of the process by which beliefs are generated and justified....
Persistent link: https://www.econbiz.de/10005150228