Convergence of Bayesian learning to general equilibrium in mis-specified models.
type: Item
instance of: scholarly article
title: Convergence of Bayesian learning to general equilibrium in mis-specified models.
zbMATH Open document ID: 1042.91028
DOI: 10.1016/S0304-4068(02)00062-9
author: Maarten Pieter Schinkel
author: Jan Tuinstra
author: Dries Vermeulen
published in: Journal of Mathematical Economics
publication date: 2003-04-02T00:00:00Z
review text: A central unanswered question in the economic theory is that of price formation in a disequilibrium. This paper pays the groundwork for a model that has been suggested as an answer to this question in, particularly, \textit{K. J. Arrow} [Toward a theory of price adjustment, in: M. Abramovitz, et al. (Ed.), The Allocation of Economic Resources, Stanford University Press, Stanford (1959)], \textit{F. M. Fisher} [Disequilibrium Foundations of Equilibrium Economics, Cambridge University Press, Cambridge (1983; Zbl 0544.90001)] and \textit{F. Hahn} [Information dynamics and equilibrium, in: F. Hahn (Ed), The Economics of Missing Markets, Information, and Games, Clarendon Press, Oxford (1989; Zbl 0699.90002)]. The authors consider sellers that monopolistically compete in prices but have incomplete information about the structure of the market they face. They entertain a simple demand conjecture in which sales are perceived to depend on the own price only, and set prices to maximize the expected profits. Prior beliefs on the parameters of conjectured demand are updated into posterior beliefs upon each observation of sales at the proposed prices, using Bayes' rule. The rational learning process, thus constructed, drives the prices dynamics of the model. Its properties are analyzed. Moreover, a sufficient condition is provided, relating objectively possible events and subjective beliefs, under which the price process is globally stable on a conjectural equilibrium for almost all objectively possible developments of history.
reviewed by: Xianping Guo
Mathematics Subject Classification ID: 91B24
Mathematics Subject Classification ID: 91B26
zbMATH DE Number: 1891756
zbMATH Keywords: disequilibrium theory
zbMATH Keywords: oligopolistic price setting
zbMATH Keywords: Bayesian learning
zbMATH Keywords: conjectural equilibrium
zbMATH Keywords: global stability
MaRDI profile type: Publication
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description: scientific article; zbMATH DE number 1891756