Journal of Political Economy Vol. 123 No. 4 2015
Uncertainty and Disagreement in Equilibrium Models
Abstract
Leading equilibrium concepts require agents’ beliefs to coincide with the model’s true probabilities and thus be free of systematic errors. This implicitly assumes a criterion that tests beliefs against the observed outcomes generated by the model. We formalize this requirement in stationary environments. We show that there is a tension between requiring that beliefs can be tested against systematic errors and allowing agents to disagree or be uncertain about the long-run fundamentals. We discuss the application of our analysis to asset pricing, Markov perfect equilibria, and dynamic games.
- DOI
- 10.1086/681241
- Volume
- 123
- Issue
- 4
- Pages
- 778-808
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref