CFDP Revision Date
We criticize the R.E.E. approach to asymmetric information general equilibrium because it does not explain how information gets “into” the prices. This leads to well-known paradoxes. We suggest a multiperiod game instead, where the flow of information into and out of prices is explicitly modeled. In our game Nash equilibria (N.E.) (1) generalize Walrasian equilibria to asymmetric information; (2) exist generically; (3) eliminate pure speculation; (4) allow prices to reveal information and markets to become more eﬀicient over time; (5) are consistent with the weak eﬀicient markets hypothesis that tracking past prices is not proﬁtable; (6) yet always lead to higher utility for better informed agents (such as experts). Throughout the paper we use one concrete game. In the last section we prove that there are a broad range of games that would have the same properties.
Dubey, Pradeep; Geanakoplos, John; and Shubik, Martin, "Revelation of Information in Strategic Market Games: A Critique of Rational Expectations" (1982). Cowles Foundation Discussion Papers. 869.