Walrasian Allocations without Price-Taking Behavior

Consider an exchange economy where agents are arbitragers, in that they try to upset allocations imagining plausible bene ̄cial trades. With an introspective algorithm, each agent constructs an interactive choice set (ICS), i.e., a set of bundles that he considers achievable through a sequence of plausible trades with other agents. We show that Walrasian allocations can be characterized as those where each agent chooses optimally from his ICS, which is always contained in a budget set (with di®erentiability, both sets coincide). Our analysis provides a di®erent behavioral assumption underlying Walrasian allocations, o®ers an explanation for the source of competitive prices, and connects with the core convergence theorem. Journal of Economic Literature classi ̄cation numbers: D00, D51.