Cookies

We use cookies to ensure that we give you the best experience on our website. By continuing to browse this repository, you give consent for essential cookies to be used. You can read more about our Privacy and Cookie Policy.


Durham Research Online
You are in:

Do sunspots matter under complete ignorance ?

Cozzi, G. and Giordani, P. E. (2006) 'Do sunspots matter under complete ignorance ?', Research in economics., 60 (3). pp. 148-154.

Abstract

In a two-period, sunspot, pure-exchange economy we analyse the case in which agents do not assign subjective probabilistic beliefs to the ‘sunspot activity’. Two generations, each of which is made up of identical agents, populate this economy. Participation in the Arrow securities market is restricted and the generation, which is allowed to trade in assets, can alternatively face uncertainty via two distribution-free decision rules under ‘complete ignorance’ (axiomatized by Milnor [Milnor, J., 1954. Games against nature. In: Thrall, R. Coombs, C., Davis, R. (Eds.), Decision Processes. John Wiley, London, pp. 49–60]): the ‘minimax regret criterion’ [Savage, L.J., 1954. The Foundations of Statistics. Wiley, New York, ch. 9] and the ‘maxmin return criterion’ [Wald, A., 1950. Statistical Decision Functions. Wiley, New York]. When the former is used, then sunspots can matter. In particular, we prove that, if the economy admits two Walrasian equilibria, then a unique sunspot equilibrium always exists. We pin down this equilibrium, determine the prices of the Arrow securities and show that, at these prices, no trade in securities takes place. In the same framework we prove that, with agents using the maxmin return criterion, sunspots do not matter.

Item Type:Article
Keywords:General equilibrium, Extrinsic uncertainty, Complete ignorance.
Full text:Full text not available from this repository.
Publisher Web site:http://dx.doi.org/10.1016/j.rie.2006.06.001
Record Created:16 Feb 2010 16:35
Last Modified:20 Aug 2010 12:13

Social bookmarking: del.icio.usConnoteaBibSonomyCiteULikeFacebookTwitterExport: EndNote, Zotero | BibTex
Usage statisticsLook up in GoogleScholar | Find in a UK Library