An equilibrium concept in a boundedly rational financial markets economy

Dawna Jones (FSU)

Time: 3:35 pm, Room: LOV 201

Abstract: The prevailing standard for modelling expectations in econofinance models has been the rational expectations paradigm. However, since the nineties more economists have called into question the unrealistic rationality assumptions concerning two characteristics of the rational expectations purview: perfect information and unlimited computing abilities. These doubts have led to the development of boundedly rational agents who form expectations based on public and observable information. In so doing, the concept of equilibrium has evolved with the limits that are placed on the agents' levels of intelligence. I will offer a new notion of equilibrium in financial consumption-based models with boundedly rational agents and compare it with other generally accepted views such as the rational expectations equilibrium and the correct expectations equilibrium.