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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.|
|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|
|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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