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Unawareness, Beliefs and Speculative Trade

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Author Info

  • Aviad Heifetz
  • Martin Meier
  • Burkhard C. Schipper

    (Department of Economics, University of California Davis)

Abstract

We define a generalized state-space model with interactive unawareness and probabilistic beliefs. Such models are desirable for potential applications of asymmetric unawareness. We compare unawareness with probability zero belief. Applying our unawareness belief structures, we show that the common prior assumption is too weak to rule out speculative trade in all states. Yet, we prove a generalized ""No-trade"" theorem according to which there can not be common certainty of strict preference to trade. Moreover, we show a generalization of the ""No-agreeing-to-disagree"" theorem.

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File URL: http://wp.econ.ucdavis.edu/09-20.pdf
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Bibliographic Info

Paper provided by University of California, Davis, Department of Economics in its series Working Papers with number 920.

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Length: 43
Date of creation: 06 Nov 2009
Date of revision:
Handle: RePEc:cda:wpaper:09-20

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Related research

Keywords: unawareness; awareness; zero probability; type-space; common prior; agreement; speculative trade; interactive epistemology;

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References

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  1. Stijn Van Nieuwerburgh & Laura Veldkamp, 2008. "Information Acquisition and Under-Diversification," NBER Working Papers 13904, National Bureau of Economic Research, Inc.
  2. Halpern, Joseph Y., 2001. "Alternative Semantics for Unawareness," Games and Economic Behavior, Elsevier, vol. 37(2), pages 321-339, November.
  3. Dov Samet, 1999. "Bayesianism without Learning," Game Theory and Information 9902004, EconWPA.
  4. Aviad Heifetz & Martin Meier & Burkhard Schipper, 2011. "Prudent Rationalizability in Generalized Extensive-Form Games," Working Papers 114, University of California, Davis, Department of Economics.
  5. Spyros Galanis, 2013. "Unawareness of theorems," Economic Theory, Springer, vol. 52(1), pages 41-73, January.
  6. Samet, Dov, 1998. "Common Priors and Separation of Convex Sets," Games and Economic Behavior, Elsevier, vol. 24(1-2), pages 172-174, July.
  7. Feinberg, Yossi, 2000. "Characterizing Common Priors in the Form of Posteriors," Journal of Economic Theory, Elsevier, vol. 91(2), pages 127-179, April.
  8. Harborne W. Stuart Jr. & Hong Hu, 2002. "An epistemic analysis of the Harsanyi transformation," International Journal of Game Theory, Springer, vol. 30(4), pages 517-525.
  9. Heifetz, Aviad & Meier, Martin & Schipper, Burkhard C, 2009. "Dynamic Unawareness and Rationalizable Behavior," MPRA Paper 15058, University Library of Munich, Germany.
  10. Halpern, Joseph Y., 2002. "Characterizing the Common Prior Assumption," Journal of Economic Theory, Elsevier, vol. 106(2), pages 316-355, October.
  11. Meier, Martin & Schipper, Burkhard C, 2010. "Speculative Trade under Unawareness: The Infinite Case," MPRA Paper 20632, University Library of Munich, Germany.
  12. Jing Li, 2008. "A Note on Unawareness and Zero Probability," PIER Working Paper Archive 08-022, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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  15. Giacomo Bonanno & Klaus Nehring, 1999. "How to make sense of the common prior assumption under incomplete information," International Journal of Game Theory, Springer, vol. 28(3), pages 409-434.
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  18. Modica, Salvatore & Rustichini, Aldo, 1999. "Unawareness and Partitional Information Structures," Games and Economic Behavior, Elsevier, vol. 27(2), pages 265-298, May.
  19. Aviad Heifetz & Martin Meier & Burkhard C. Schipper, 2005. "A Canonical Model for Interactive Unawareness," Bonn Econ Discussion Papers bgse23_2005, University of Bonn, Germany.
  20. Paul Milgrom & Nancy L.Stokey, 1979. "Information, Trade, and Common Knowledge," Discussion Papers 377R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  21. Li, Jing, 2009. "Information structures with unawareness," Journal of Economic Theory, Elsevier, vol. 144(3), pages 977-993, May.
  22. Oliver Board, 2008. "Object-Based Unawareness: Theory and Applications," Working Papers 378, University of Pittsburgh, Department of Economics, revised Mar 2009.
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  24. Galanis, Spyros, 2013. "Trade and the value of information under unawareness," Discussion Paper Series In Economics And Econometrics 1313, Economics Division, School of Social Sciences, University of Southampton.
  25. Monderer, Dov & Samet, Dov, 1989. "Approximating common knowledge with common beliefs," Games and Economic Behavior, Elsevier, vol. 1(2), pages 170-190, June.
  26. Heinsalu, Sander, 2012. "Equivalence of the information structure with unawareness to the logic of awareness," Journal of Economic Theory, Elsevier, vol. 147(6), pages 2453-2468.
  27. Morris, Stephen, 1995. "The Common Prior Assumption in Economic Theory," Economics and Philosophy, Cambridge University Press, vol. 11(02), pages 227-253, October.
  28. Leandro Rêgo & Joseph Halpern, 2012. "Generalized solution concepts in games with possibly unaware players," International Journal of Game Theory, Springer, vol. 41(1), pages 131-155, February.
  29. Halpern, Joseph Y. & Rego, Leandro Chaves, 2008. "Interactive unawareness revisited," Games and Economic Behavior, Elsevier, vol. 62(1), pages 232-262, January.
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Citations

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Cited by:
  1. Burkhard Schipper, 2010. "Revealed Unawareness," Working Papers 105, University of California, Davis, Department of Economics.
  2. Heinsalu, Sander, 2014. "Universal type structures with unawareness," Games and Economic Behavior, Elsevier, vol. 83(C), pages 255-266.
  3. Meier, Martin & Schipper, Burkhard C, 2010. "Speculative Trade under Unawareness: The Infinite Case," MPRA Paper 20632, University Library of Munich, Germany.
  4. Sarah Auster, 2011. "Asymmetric Awareness and Moral Hazard," Economics Working Papers ECO2011/, European University Institute.
  5. Auster, Sarah, 2013. "Asymmetric awareness and moral hazard," Games and Economic Behavior, Elsevier, vol. 82(C), pages 503-521.

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