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Exercises in Conjectural Equilibrium

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  • Frank Hahn

Abstract

In this paper one considers an economy in which individuals can transact at “false” prices. When they do they encounter quantity constraints, this in turn, as Arrow has noted, stops them acting as perfect competitors. In particular they must form an hypothesis concerning a possibility of affecting their quantity constraints by a change of price. This hypothesis is called a conjecture. A set of prices and quantity signals at which desired trades are achieved and no prices change is advantageous under the conjecture is a conjectural equilibrium. Economies can have conjectural equilibria even when they have a Walrasian one. Naturally one wants a theory of conjecture formation. In what follows it is shown, mainly by examples, that it is not fruitful to look for rational conjectural equilibria (defined in the sequel). One concludes that at best one could hope that agents conjecture Marshallian schedules.
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  • Frank Hahn, 2010. "Exercises in Conjectural Equilibrium," Levine's Working Paper Archive 526, David K. Levine.
    • Handle: RePEc:cla:levarc:526
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    Cited by:

    1. Simmons, Richard & Dini, Paolo & Culkin, Nigel & Littera, Giuseppe, 2021. "Crisis and the role of money in the real and financial economies: an innovative approach to monetary stimulus," LSE Research Online Documents on Economics 110904, London School of Economics and Political Science, LSE Library.
    2. Manxi Wu & Saurabh Amin & Asuman Ozdaglar, 2021. "Multi-agent Bayesian Learning with Best Response Dynamics: Convergence and Stability," Papers 2109.00719, arXiv.org.
    3. Richard Simmons & Paolo Dini & Nigel Culkin & Giuseppe Littera, 2021. "Crisis and the Role of Money in the Real and Financial Economies—An Innovative Approach to Monetary Stimulus," JRFM, MDPI, vol. 14(3), pages 1-28, March.
    4. David Levine, 1981. "The Enforcement of Collusion in a Simple Oligopoly," UCLA Economics Working Papers 211, UCLA Department of Economics.

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