Expectations equilibria with dispersed forecasts

Abstract

A dispersion condition for traders' forecasts in a general equilibrium model with uncertainty and asymmetric information yields improved results for some (microeconomic) situations in which rational expectations equilibria need not exist. The hypothesis of suitably dispersed forecasts implies that consumers' aggregate excess demand is a continuous function and therefore a fixed point theorem may be applied to obtain a price vector (for each state of the world) such that markets clear. Stronger assumptions give existence of approximately rational expectations equilibria and the convergence of forecast distributions to rational expectations.