TY - JOUR
T1 - Coarse competitive equilibrium and extreme prices
AU - Gul, Faruk
AU - Pesendorfer, Wolfgang
AU - Strzalecki, Tomasz
N1 - Funding Information:
This research was supported by grants from the Sloan Foundation and the National Science Foundation: SES-0010394 and SES-1123729, and the NSF CAREER grant SES-1255062.
PY - 2017/1
Y1 - 2017/1
N2 - We introduce a notion of coarse competitive equilibrium, to study agents' inability to tailor their consumption to prices. Our goal is to incorporate limited cognitive ability (in particular limited attention, memory, and complexity) into the analysis of competitive equilibrium. Compared to standard competitive equilibrium, our concept yields more extreme prices and, when all agents have the same endowment, riskier allocations. We provide a tractable model suitable for general equilibrium analysis as well as asset pricing.
AB - We introduce a notion of coarse competitive equilibrium, to study agents' inability to tailor their consumption to prices. Our goal is to incorporate limited cognitive ability (in particular limited attention, memory, and complexity) into the analysis of competitive equilibrium. Compared to standard competitive equilibrium, our concept yields more extreme prices and, when all agents have the same endowment, riskier allocations. We provide a tractable model suitable for general equilibrium analysis as well as asset pricing.
UR - http://www.scopus.com/inward/record.url?scp=85009167973&partnerID=8YFLogxK
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U2 - 10.1257/aer.20141287
DO - 10.1257/aer.20141287
M3 - Article
AN - SCOPUS:85009167973
SN - 0002-8282
VL - 107
SP - 109
EP - 137
JO - American Economic Review
JF - American Economic Review
IS - 1
ER -