The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Uncertainty and General Equilibrium

  • Mukul Majumdar
  • Roy Radner
Reference work entry


This article reviews alternative approaches to incorporating uncertainty in Walrasian models. It begins with a sketch of the Arrow–Debreu model of complete markets. An extension of this framework allowing for economic agents to have different information about the environment is followed by a critique. When markets are incomplete and trades take place sequentially, several types of equilibrium concept arise according to the hypotheses we make about the way traders form their expectations. We present conditions for the existence of equilibria for two such equilibrium concepts, and discuss the possible failure to attain Paretian welfare optima.


Arrow–Debreu model Bounded rationality Budget constraints Competitive equilibrium Conditional probability Consumption possibility set Equilibrium Existence of competitive equilibrium Expectation formation Expected utility hypothesis General equilibrium Incomplete information Incomplete markets Indicative planning Inside information Limited liability Moral hazard Nonprice information Optimality of competitive equilibrium Pareto efficiency Perfect foresight Production possibility set Pseudo-equilibrium Rational expectations Rational expectations equilibrium Risk Sequential trading Steady state Temporary (or momentary) equilibrium Uncertainty Walras’s law 

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Mukul Majumdar
    • 1
  • Roy Radner
    • 1
  1. 1.