Coarse competitive equilibrium and extreme prices

Faruk Gul, Wolfgang Pesendorfer, Tomasz Strzalecki

Research output: Contribution to journalArticlepeer-review

7 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)109-137
Number of pages29
JournalAmerican Economic Review
Volume107
Issue number1
DOIs
StatePublished - Jan 2017

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Coarse competitive equilibrium and extreme prices'. Together they form a unique fingerprint.

Cite this