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Equilibrium, optimum, and prejudices in capital markets
Author(s) -
Borch Karl
Publication year - 1969
Publication title -
behavioral science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.371
H-Index - 45
eISSN - 1099-1743
pISSN - 0005-7940
DOI - 10.1002/bs.3830140602
Subject(s) - simple (philosophy) , economics , competition (biology) , point (geometry) , microeconomics , mathematical economics , capital (architecture) , perfect competition , capital market , neoclassical economics , mathematics , finance , ecology , philosophy , epistemology , history , geometry , archaeology , biology
Abstract The behavioral assumptions which economists call “perfect competition,” imply that decentralized decision making under certain conditions leads to a social optimum. This is a central result of classical economic theory. The author discusses the result, and shows that it cannot be expected to hold when uncertainty is introduced. The point is illustrated by a simple example from business finance.