A remark on the supposed equivalence between complete markets and perfect foresight hypothesis

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A remark on the supposed equivalence between complete markets and perfect foresight hypothesis

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Fratini, Saverio M.
Levrero, Enrico Sergio

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Saverio M. Fratini

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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15988.

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Date of creation: Jun 2009
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Handle: RePEc:pra:mprapa:15988

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Find related papers by JEL classification:
D46 - Microeconomics - - Market Structure and Pricing - - - Value Theory
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-07-11 (All new papers)
NEP-MIC-2009-07-11 (Microeconomics)

References listed on IDEAS
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Grandmont, Jean-Michel, 1977. "Temporary General Equilibrium Theory," Econometrica, Econometric Society, vol. 45(3), pages 535-72, April. [Downloadable!] (restricted)
Saverio M. Fratini, 2008. "Economic Generality Versus Mathematical Genericity: Activity-Level Indeterminacy And The Index Theorem In Constant Returns Production Economies," Metroeconomica, Blackwell Publishing, vol. 59(2), pages 266-275, 05. [Downloadable!] (restricted)
Mandler Michael, 1995. "Sequential Indeterminacy in Production Economies," Journal of Economic Theory, Elsevier, vol. 66(2), pages 406-436, August. [Downloadable!] (restricted)
Green, Jerry R, 1973. "Temporary General Equilibrium in a Sequential Trading Model with Spot and Futures Transactions," Econometrica, Econometric Society, vol. 41(6), pages 1103-23, November. [Downloadable!] (restricted)
Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July. [Downloadable!] (restricted)

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