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Heterogeneous probabilities in complete asset markets

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Author Info

  • CALVET, Laurent

    (Yale University, and CERAS, Paris)

  • GRANDMONT, Jean-Michel

    ()
    (CREST and CNRS, Paris)

  • LEMAIRE, Isabelle

    (CREST-INSEE, Paris)

Abstract

We show in this paper how, in a model of assets exchange in complete competitive markets, heterogeneity of the agent’s sub jective probabilities generates aggregate expenditures for Arrow-Debreu securities that have the gross substitutability property, with the consequences that competitive equilibrium is unique, stable in any tatonnement process, and that the weak axiom of revealed preferences is satisfied in the aggregate. For this result, heterogeneity is required to be highest among people who have the largest risk aversion

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1998019.

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Date of creation: 01 Mar 1998
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Handle: RePEc:cor:louvco:1998019

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Related research

Keywords: Heterogeneity; subjective probabilities; complete asset markets.;

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Cited by:
  1. Gael Giraud & Isabelle Maret, 2002. "Behavioral Heterogeneity in Large Economies," Working Papers of BETA 2002-04, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  2. Gael GIRAUD & Isabelle MARET, 2002. "Modelling Behavioral Heterogeneity," Working Papers of BETA 2002-22, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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