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Asymmetric information and rationalizability

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  • Gabriel Desgranges
  • Stéphane Gauthier

Abstract

We study how asymmetric information affects the set of rationalizable solutions in a linear setup where the outcome is determined by forecasts about this same outcome. The unique rational expectations equilibrium is also the unique rationalizable solution when the sensitivity of the outcome to agents’ forecasts is less than one, provided that this sensitivity is common knowledge. Relaxing this common knowledge assumption, multiple rationalizable solutions arise when the proportion of agents who know the sensitivity is large, and the uninformed agents believe it is possible that the sensitivity is greater than one. Instability is equivalent to existence of some kind of sunspot equilibria. Copyright Springer-Verlag Berlin Heidelberg 2013

Suggested Citation

  • Gabriel Desgranges & Stéphane Gauthier, 2013. "Asymmetric information and rationalizability," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(3), pages 789-804, November.
    • Handle: RePEc:spr:joecth:v:54:y:2013:i:3:p:789-804
    DOI: 10.1007/s00199-012-0731-1
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    More about this item

    Keywords

    Asymmetric information; Common knowledge; Eductive learning; Rational expectations; Rationalizability; C62; D82; D84;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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