SELF-FULFILLING MECHANISMS AND RATIONAL-EXPECTATIONS

We introduce a class of communication equilibria, which we call self-f ulfilling mechanisms, and show that they provide a game-theoretic foun dation to rational expectations equilibria. Let E be an exchange econo my with differential information. We associate a strategic market game Gamma(E) with E. We prove thai the allocations achieved through a sel f-fulfilling mechanism in Gamma(E) coincide with the rational expectat ions equilibrium allocations in E. In order to understand how self-ful filment can be realized in a dynamic framework, we investigate the rel ationship between self-fulfilling mechanisms in Gamma(E) and Nash equi libria of the T-stage repeated game Gamma(T)(E). (C) 1997 Academic Pre ss.