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At a rational expectations equilibrium (REE), individuals are assumed to know the map from states to prices. This hypothesis has two components, that agents agree (consensus), and that they have point expectations (degeneracy). We consider economies where agents ' beliefs are described by a joint distribution on states and prices, and these beliefs are ful¯lled at equilibrium. Beliefs are self-ful¯lling if every price in the support of the distribution is an equilibrium price. The corresponding equilibria are Beliefs Equilibria (BE). The further restriction that agents have the same beliefs results in Common Beliefs Equilibria (CBE). We study the relationship between BE, CBE, and REE, thus isolating the role of consensus and of degeneracy in achieving rational expectations. The ¯rst version of this paper (Dutta and Morris 1994) was prepared for the SITE Summer Workshop on \General Equilibrium under Uncertainty". We are grateful for comments from seminar participants and ¯nancial support from SITE. We have bene¯tted from discussion

Year: 2011
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