Access

You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:

login

Log in to your personal account or through your institution.

Behavioral Equilibrium in Economies with Adverse Selection

Ignacio Esponda
The American Economic Review
Vol. 98, No. 4 (Sep., 2008), pp. 1269-1291
Stable URL: http://www.jstor.org/stable/29730122
Page Count: 23
  • Download ($10.00)
  • Subscribe ($19.50)
  • Cite this Item
Behavioral Equilibrium in Economies with Adverse Selection
Preview not available

Abstract

I propose a new solution concept—behavioral equilibrium—to study environments with players who are naive, in the sense that they fail to account for the informational content of other players' actions. I apply the framework to certain adverse selection settings and show that, contrary to the existing literature, the adverse selection problem is exacerbated when naive players fail to account for selection. More generally, the main distinguishing feature of the framework is that, in equilibrium, beliefs about both fundamentals and strategies are jointly restricted. Consequently, whether a behavioral bias may arise or not is determined endogenously in equilibrium.

Page Thumbnails

  • Thumbnail: Page 
1269
    1269
  • Thumbnail: Page 
1270
    1270
  • Thumbnail: Page 
1271
    1271
  • Thumbnail: Page 
1272
    1272
  • Thumbnail: Page 
1273
    1273
  • Thumbnail: Page 
1274
    1274
  • Thumbnail: Page 
1275
    1275
  • Thumbnail: Page 
1276
    1276
  • Thumbnail: Page 
1277
    1277
  • Thumbnail: Page 
1278
    1278
  • Thumbnail: Page 
1279
    1279
  • Thumbnail: Page 
1280
    1280
  • Thumbnail: Page 
1281
    1281
  • Thumbnail: Page 
1282
    1282
  • Thumbnail: Page 
1283
    1283
  • Thumbnail: Page 
1284
    1284
  • Thumbnail: Page 
1285
    1285
  • Thumbnail: Page 
1286
    1286
  • Thumbnail: Page 
1287
    1287
  • Thumbnail: Page 
1288
    1288
  • Thumbnail: Page 
1289
    1289
  • Thumbnail: Page 
1290
    1290
  • Thumbnail: Page 
1291
    1291