Abstract
There are two theories for the treatment of market uncertainty: rationalizable expectations and sunspot equilibria. This paper shows how the game-theoretic solution concept of rationalizable expectations can be applied to an overlapping-generations exchange economy. Some general properties of these equilibria are discussed. It is shown that rationalizable-expectations equilibria are the predictions yielded by considering sunspot equilibria in which probability beliefs may differ across individuals. This result allows for a new interpretation of sunspot equilibria and helps to understand their relevance.
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Heinemann, F. Rationalizable expectations and sunspot equilibria in an overlapping-generations economy. Journal of Economics Zeitschrift für Nationalökonomie 65, 257–277 (1997). https://doi.org/10.1007/BF01226845
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DOI: https://doi.org/10.1007/BF01226845