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Walrasian Sequential Equilibrium, Bounded Rationality, And Social Experiments

Author

Listed:
  • XIAOKAI YANG

    (Department of Economics, Monask University, Clayton, Victoria, Australia 3800, Australia)

  • SHUNTIAN YAO

    (Division of Applied Economics, Nanyang Business School, Nanyang Technological University, Singapore 639798, Singapore)

Abstract

In the paper, the concept of Walrasian sequential equilibrium is developed to formalize the notions of fundamental social and endogenous uncertainties and decentralized social learning. It predicts that social sequential experiments with efficient as well as inefficient network patterns of division of labour can gradually acquire organization information for society as a whole. The experiment process is decentralized and based on individuals' bounded rationality. In this process, each individual never knows the others' characteristics, although all players collectively learn abstract organization information conveyed by price signals gradually. This paper proves an existence theorem of equilibrium for a general class of well-closed Walrasian sequential equilibrium models and avoids the recursive paradox in the presence of individual bounded rationality.

Suggested Citation

  • Xiaokai Yang & Shuntian Yao, 2005. "Walrasian Sequential Equilibrium, Bounded Rationality, And Social Experiments," Division of Labor & Transaction Costs (DLTC), World Scientific Publishing Co. Pte. Ltd., vol. 1(01), pages 73-98.
    • Handle: RePEc:wsi:dltcxx:v:01:y:2005:i:01:n:s0219871105000074
    DOI: 10.1142/S0219871105000074
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    References listed on IDEAS

    as
    1. Fudenberg, Drew & Levine, David, 1998. "Learning in games," European Economic Review, Elsevier, vol. 42(3-5), pages 631-639, May.
    2. Drew Fudenberg & David K. Levine, 1998. "The Theory of Learning in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061945, April.
    3. Yew-Kwang Ng & Heling Shi & Guang-Zhen Sun (ed.), 2003. "The Economics of E-Commerce and Networking Decisions," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-4039-3837-4, December.
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    Citations

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    Cited by:

    1. Shuntian Yao & Ke Li, 2008. "Economic Networking And Stability," Pacific Economic Review, Wiley Blackwell, vol. 13(5), pages 632-640, December.

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    More about this item

    Keywords

    Walrasian sequential equilibrium; division of labour; bounded rationality; social experiments;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D - Microeconomics
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • F - International Economics
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • L - Industrial Organization
    • O - Economic Development, Innovation, Technological Change, and Growth

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