Equilibrium models vs. realistic understanding
Equilibrium models vs. realistic understanding
In the real world, the process of reaching the assumed equilibrium involves decision makers’ knowledge and their awareness of any disequilibrium. Equilibrium attainment also requires their making the correct decisions required for a ‘stable’ equilibrium. Any model which fails to explicitly address the equilibrium process and its requirements is vulnerable to criticism of the model’s realism. This chapter explores, specifically, whether the knowledge required to reach equilibrium can ever be attained by participants, whether the process of obtaining that knowledge can be consistent with the requirements of achieving an equilibrium. It also explores the ‘ignorant consumer’ who has no way of knowing that he or she is not maximizing.
Keywords: disequilibrium awareness, stable equilibrium, equilibrium attainment, knowledge requirements, ignorant consumer
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