Essays on expectations, equilibrium, and asset pricing

In this work we deal with the relationship between expectations, equilibrium, and behaviour of asset prices. After introducing the main themes in the first chapter, each one of the following essays deals with some aspect of this relationship. We argue that recent dissatisfactions with the assumption of rational expectations and the attempts to replace this assumption by some alternative are based on the belief that there is some behavioural content implied by the assumption itself. If one views the assumption of correctly anticipated prices as a consistency condition within the framework of general equilibrium in sequential economies under uncertainty it becomes clear that the dissatisfaction with the assumption of rational expectations is not simply a matter of replacing it with something else—one must look for an alternative equilibrium concept.; After having illustrated some of the above points in the first essay, in the second essay we present the theory of rational beliefs, originally introduced by Kurz (1994a,b), and suggest that this is a viable alternative to rational expectations. We then investigate the relationship between rational expectations and rational beliefs within a general framework set up to address these questions. After this, in the third essay we investigate the behaviour of asset prices in rational beliefs economies and establish the relationship between the properties of prices and market incompleteness.; In the last essay we investigate the consequences of a recent attempt by Cecchetti et al. (2000) to account for the equity premium puzzle by substituting the assumption of rational expectations by the assumption of distorted beliefs. We show that the explanatory power of the distorted beliefs model is due to a fundamental inconsistency present there and that the attempt to remove this inconsistency within their model removes any explanatory power from it. We then construct a model in which this inconsistency is not present, and explain the results obtained. These results are, in the end, related to the results on equity premium puzzle obtained by Kurz and Beltratti (1996), and Kurz and Motolese (2000), and some general conclusions are drawn.