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Random Matching and Aggregate Uncertainty

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Author Info
Molzon, Robert
Puzzello, Daniela

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Abstract

Random matching is often used in economic models as a means of introducing uncertainty in sequential decision problems. We show that random matching schemes that satisfy standard conditions on proportionality are not unique. Two examples show that in a simple growth model, radically di¤erent optimal behavior can result from distinct matching schemes satisfying identical proportionality conditions. That is, non-uniqueness has interesting economic implications since it a¤ects the reward and the transi- tion structures. We propose information entropy as a natural method for selecting unique matching structures for these models. Next, we give conditions on the reward and transition structures of sequential decision models under which the models are not a¤ected by non-uniqueness of the matching scheme.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8603.

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Date of creation: 2008
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Handle: RePEc:pra:mprapa:8603

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Find related papers by JEL classification:
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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  1. John Duffy & Jack Ochs, 1999. "Emergence of Money as a Medium of Exchange: An Experimental Study," American Economic Review, American Economic Association, vol. 89(4), pages 847-877, September. [Downloadable!] (restricted)
  2. Aliprantis, C. D. & Camera, G. & Puzzelo, D., 2004. "A Random Matching Theory," Purdue University Economics Working Papers 1168, Purdue University, Department of Economics. [Downloadable!]
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  3. Charalambos Aliprantis & Gabriele Camera & Daniela Puzzello, 2006. "Matching and anonymity," Economic Theory, Springer, vol. 29(2), pages 415-432, October. [Downloadable!] (restricted)
  4. Judd, Kenneth L., 1985. "The law of large numbers with a continuum of IID random variables," Journal of Economic Theory, Elsevier, vol. 35(1), pages 19-25, February. [Downloadable!] (restricted)
  5. Boylan, Richard T., 1990. "Laws of Large Numbers for Dynamical Systems with Randomly Matched Individuals," Working Papers 748, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  6. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August. [Downloadable!] (restricted)
  7. Boylan, Richard T., 1992. "Laws of large numbers for dynamical systems with randomly matched individuals," Journal of Economic Theory, Elsevier, vol. 57(2), pages 473-504, August. [Downloadable!] (restricted)
  8. Itzhak Gilboa & Akihiko Matsui, 1990. "A Model of Random Matching," Discussion Papers 887, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  9. Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
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  10. Charalambos D Aliprantis & Gabriele Camera & Daniela Puzzello, 2007. "Contagion Equilibria in a Monetary Model," Econometrica, Econometric Society, vol. 75(1), pages 277-282, 01. [Downloadable!] (restricted)
  11. Alos-Ferrer, Carlos, 1999. "Dynamical Systems with a Continuum of Randomly Matched Agents," Journal of Economic Theory, Elsevier, vol. 86(2), pages 245-267, June. [Downloadable!] (restricted)
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