BFS 2002

Contributed Talk

Nonsophisticated traders in a competitive securities market equilibrium

Gregory A. Willard, Mark Loewenstein

The actual economy is large and complex, and one might argue that not every economic agent is sufficiently sophisticated enough to know in advance every economic consequence of a chosen set of actions. We study competitive equilibrium in a model in which some or all agents do not know about some states of nature. Over time, certain agents will be surprised if the economy evolves inconsistently with their endowed state spaces.