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 random evolving lotteries to study preference for non‐instrumental information. Each period, the agent enjoys a flow payoff from holding a lottery that will resolve at the terminal date. We provide a representation theorem for non‐separable risk consumption preferences and use...