Are more risk averse agents more optimistic? Insights from a rational expectations model

We analyse a model of partially revealing, rational expectations equilibrium with diverse information, endogenous beliefs formation and uncertain distribution of risk aversion. More risk averse agents are then more optimistic. Such a positive correlation is important for collective decision analysis.     

Consumption dynamics under information processing constraints

This paper studies how “rational inattention” (RI)—a type of information processing constraint proposed by Sims [Sims, C.A., 2003. Implications of rational inattention, Journal of Monetary Economics 50 (3), 665–690]—affects the joint dynamics of consumption and income in a permanent income model with general income processes. Specifically, I propose an analytical approach to solve the multivariate permanent income model with RI and examine its implications for optimal consumption, saving, and welfare. It is shown that RI can affect the relative volatility of consumption and provide an endogenous propagation mechanism that disentangles the short-run and long-run responses of consumption to exogenous income shocks. I also explore how aggregation reduces the impact of the RI-induced endogenous noise on consumption and thus increases the smoothness of aggregate consumption. Finally, I compare RI with four alternative hypotheses (habit formation, signal extraction, robustness, and inattentiveness) by examining their implications for the joint behavior of consumption and income.     

Weakly rational expectations

Aumann and Drèze (2008) characterised the set of interim expected payoffs that players may have in rational belief systems, in which there is common knowledge of rationality and a common prior. We show here that common knowledge of rationality is not needed: when rationality is satisfied in the support of an action-consistent distribution (a concept introduced by Barelli (2009)), one obtains exactly the same set of rational expectations, despite the fact that in such ‘weakly rational belief systems’ there may not be mutual knowledge of rationality, let alone common knowledge of rationality. In the special case of two-player zero-sum games, the only expected payoff is the minmax value, even under these weak assumptions.     

Assessing the efficacy of rational budgeting approaches: fiscal recovery planning and municipal budgetary solvency

ABSTRACT

This study assesses the effects of financial recovery planning on the budgetary solvency of US cities. Budgetary solvency is the ability of governments to meet their service responsibilities and other financial obligations in a fiscal year. Financial recovery planning, which is based on rational decision-making theory, is designed to help cities recover from fiscal stress by facilitating diagnosis of fiscal problems, and the implementation of short- and long-term fiscal recovery strategies. Using data from a national survey of cities and multi-year audited financial reports, the results of the regression analyses show that planning is associated with stronger budgetary solvency, but its effectiveness varies across cities. Specifically, planning helps majority of fiscally struggling cities, but not those facing extreme fiscal decline.     

Bayesian–Walrasian equilibria: beyond the rational expectations equilibrium

In general rational expectations equilibrium (REE), as introduced in Radner (Econometrica 47:655–678, 1978) in an Arrow–Debreu–McKenzie setting with uncertainty, does not exist. Moreover, it fails to be fully Pareto optimal and incentive compatible and is also not implementable as a perfect Bayesian equilibrium of an extensive form game (Glycopantis et al. in Econ Theory 26:765–791, 2005). The lack of all the above properties is mainly due to the fact that the agents are supposed to predict the equilibrium market clearing price (as agent’s expected maximized utility is conditioned on the information that equilibrium prices reveal), which leads inevitably to the presumption that agents know all the primitives in the economy, i.e., random initial endowments, random utility functions and private information sets. To get around this problematic equilibrium notion, we introduce a new concept called Bayesian–Walrasian equilibrium (BWE) which has Bayesian features. In particular, agents try to predict the market-clearing prices using Bayesian updating and evaluate their consumption in terms of Bayesian price estimates, which are different for each individual. In this framework agents maximize expected utility conditioned on their own private information about the state of nature, subject to a Bayesian estimated budget constraint. Market clearing is not an intrinsic part of the definition of BWE. However, both in the case of perfect foresight and in the case of symmetric information BWE leads to a statewise market clearing; it then becomes an ex post Walrasian equilibrium allocation. This new BWE exists under standard assumptions, in contrast to the REE. In particular, we show that our new BWE exists in the well-known example in Kreps (J Econ Theory 14:32–43, 1977), where REE fails to exist. This work was done in the Spring of 2005, when EJB was a visiting professor at the University of Illinois.     

关于中国现时期需求不足的理性分析与对策思考

本文对我国现时期出现的需求不足问题进行了理性分析,并进一步从理论和实践的结合上论证了产生这一问题的主要原因是：通货紧缩、普遍性供给过剩、消费预期恶化。本文的宗旨是为政府采取治理需求不足政策提供理论根据。     

科学提升中国金融业“走出去”品质——兼论推进人民币理性国际化的路径选择

文章认为中国走出去分为三个层次,一是产品走出去,二是企业走出去,三是金融走出去。金融走出去最关键的是人民币走出去,即实现人民币的全球化。在后危机时代,金融是实现战略转型的重要手段,而且是提升我国走出去品质的战略抓手。我们要真正提升金融走出去品质,一要优化金融走出去的载体结构,做大做强金融机构;二要优化金融走出去的产品结构,提升金融知识产权状态;三要提高人民币的社会主义运用水平,科学推进人民币理性国际化。     

企业人员招聘中存在的问题与对策研究

当今社会,人才已经成为企业最宝贵的财富,招聘是企业人力资源配置的前提和首要工作,人才招聘实施的成功与否,事关企业的生存与发展。     

Economic planning for market economies : The optimality of planning in an economy with uncertainty and asymmetrical information

The paper is based on a disequilibrium model which is Keynesian in the ‘short run’, ie with given expectations, but which admits of a continuum of equilibria when expectations are rational. Expectations are adaptive (so that they are rational only in the long run) but can be influenced by an indicative plan. The government and the private sector have differing information sets, each knowing some things the other sector does not (spontaneously) know. It is shown that in this world, an optimal plan dominates a self-fulfilling plan, which in turn dominates a no-planning equilibrium.