Asymmetric information in a competitive market game: Reexamining the implications of rational expectations |
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| Authors: | Matthew O Jackson James Peck |
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| Institution: | (1) Division of Humanities and Social Sciences 228-77, Caltech, Pasadena, CA 91125, USA (e-mail: jacksonm@hss.caltech.edu), US;(2) Department of Economics, The Ohio State University, 1945 N. High Street, Columbus, OH 43210-1172, USA (e-mail: peck.33@osu.edu), US |
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| Abstract: | Summary. We examine price formation in a simple static model with asymmetric information, an infinite number of risk neutral traders
and no noise traders. Here we re-examine four results associated with rational expectations models relating to the existence
of fully revealing equilibrium prices, the advantage of becoming informed, the costly acquisition of information, and the
impossibility of having equilibrium prices with higher volatility than the underlying fundamentals.
Received: August 27, 1997; revised version: February 11, 1998 |
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| Keywords: | and Phrases: Market game Excess volatility Rational expectations Asymmetric information Information acquisition JEL Classification Numbers: G12 G14 D84 |
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