Coarse competitive equilibrium and extreme prices

Faruk Gul; Wolfgang Pesendorfer; Tomasz Strzalecki

doi:10.1257/aer.20141287

Coarse competitive equilibrium and extreme prices

Faruk Gul
, Wolfgang Pesendorfer
, Tomasz Strzalecki

Economics

Research output: Contribution to journal › Article › peer-review

15 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 language	English (US)
Pages (from-to)	109-137
Number of pages	29
Journal	American Economic Review
Volume	107
Issue number	1
DOIs	https://doi.org/10.1257/aer.20141287
State	Published - Jan 2017

All Science Journal Classification (ASJC) codes

Economics and Econometrics

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10.1257/aer.20141287

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author = "Faruk Gul and Wolfgang Pesendorfer and Tomasz Strzalecki",

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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.

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Coarse competitive equilibrium and extreme prices

Abstract

All Science Journal Classification (ASJC) codes

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