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Coarse competitive equilibrium and extreme prices

Author(s): Gul, Faruk R.; Pesendorfer, Wolfgang; Strzalecki, T

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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.
Publication Date: Jan-2017
Citation: Gul, F, Pesendorfer, W, Strzalecki, T. (2017). Coarse competitive equilibrium and extreme prices. American Economic Review, 107 (1), 109 - 137. doi:10.1257/aer.20141287
DOI: doi:10.1257/aer.20141287
ISSN: 0002-8282
Pages: 109 - 137
Type of Material: Journal Article
Journal/Proceeding Title: American Economic Review
Version: Final published version. Article is made available in OAR by the publisher's permission or policy.

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