Learning by Trading in Infinite Horizon Strategic Market Games with Default

Sonja Brangewitz () and Gaël Giraud
Additional contact information
Sonja Brangewitz: University of Paderborn

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: We study the consequences of dropping the perfect competition assumption in a standard infinite horizon model with infinitely-lived traders and real collateralized assets, together with one additional ingredient : information among players is asymmetric and monitoring is incomplete. The key insight is that trading assets is not only a way to hedge oneself against uncertainty and to smooth consumption across time : it also enables learning information. Conversely, defaulting now becomes strategic : certain players may manipulate prices so as to provoke a default in order to prevent their opponents from learning. We focus on learning equilibria, at the end of which no player has incorrect beliefs -- not because those players with heterogeneous beliefs were eliminated from the market (although default is possible at equilibrium) but because they have taken time to update their prior belief. We prove a partial Folk theorem à la Wiseman (2011) of the following form : for any function that maps each state of the world to a sequence of feasible and strongly individually rational allocations, and for any degree of precision, there is a perfect Bayesian equilibrium in which patient players learn the realized state with this degree of precision and achieve a payoff close to the one specified for each state.

Keywords: adverse selection; Strategic market games; infinite horizon; incomplete markets; collateral; incomplete information; learning; adverse selection.; Jeu stratégique de marchés; horizon infini; marchés incomplets; information incomplète; apprentissage; antisélection. (search for similar items in EconPapers)
Date: 2012-09
New Economics Papers: this item is included in nep-cta
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00747899
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in 2012

Downloads: (external link)
https://shs.hal.science/halshs-00747899/document (application/pdf)

Related works:
Working Paper: Learning by Trading in Infinite Horizon Strategic Market Games with Default (2013)
Working Paper: Learning by Trading in Infinite Horizon Strategic Market Games with Default (2012)
Working Paper: Learning by Trading in Infinite Horizon Strategic Market Games with Default (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-00747899

Access Statistics for this paper

More papers in Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL
Bibliographic data for series maintained by CCSD ().