Economic Theory

, Volume 13, Issue 3, pp 603–628

Asymmetric information in a competitive market game: Reexamining the implications of rational expectations

Authors

  • Matthew O. Jackson
    • Division of Humanities and Social Sciences 228-77, Caltech, Pasadena, CA 91125, USA (e-mail: jacksonm@hss.caltech.edu)
  • James Peck
    • Department of Economics, The Ohio State University, 1945 N. High Street, Columbus, OH 43210-1172, USA (e-mail: peck.33@osu.edu)
Article

DOI: 10.1007/s001990050272

Cite this article as:
Jackson, M. & Peck, J. Economic Theory (1999) 13: 603. doi:10.1007/s001990050272

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.

Keywords and Phrases: Market game Excess volatilityRational expectationsAsymmetric informationInformation acquisition.JEL Classification Numbers: G12G14D84.

Copyright information

© Springer-Verlag Berlin Heidelberg 1999