This setting lets you change the way you view articles. You can choose to have articles open in a dialog window, a new tab, or directly in the same window.
Open in Dialog
Open in New Tab
Open in same window

American Economic Review: Vol. 98 No. 4 (September 2008)


Quick Tools:

Print Article Summary
Export Citation
Sign up for Email Alerts Follow us on Twitter


AER - All Issues

AER Forthcoming Articles

Behavioral Equilibrium in Economies with Adverse Selection

Article Citation

Esponda, Ignacio. 2008. "Behavioral Equilibrium in Economies with Adverse Selection." American Economic Review, 98(4): 1269-91.

DOI: 10.1257/aer.98.4.1269


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. (JEL C70, D82, D83)

Article Full-Text Access

Full-text Article

Additional Materials

Link to Appendix (281.71 KB)


Esponda, Ignacio (NYU)

JEL Classifications

C70: Game Theory and Bargaining Theory: General
D82: Asymmetric and Private Information
D83: Search; Learning; Information and Knowledge; Communication; Belief

American Economic Review

Quick Tools:

Sign up for Email Alerts

Follow us on Twitter

Subscription Information
(Institutional Administrator Access)


AER - All Issues

AER - Forthcoming Articles

Virtual Field Journals

AEA Member Login:

AEAweb | AEA Journals | Contact Us