Aggregation of Heterogeneous Beliefs
AbstractThis paper is a generalization of Calvet et al. (2002) to a dynamic setting. We propose a method to aggregate heterogeneous individual probability beliefs, in dynamic and complete asset markets, into a single consensus probability belief. This consensus probability belief, if commonly shared by all investors, generates the same equilibrium prices as well as the same individual marginal valuation as in the original heterogeneous probability beliefs setting. As in Calvet et al. (2002), the construction stands on a fictitious adjustment of the market portfolio. The adjustment process reflects the aggregation bias due to the diversity of beliefs. In this setting, the construction of a representative agent is shown to be also valid.
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Date of creation: 01 Sep 2006
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Publication status: Published, Journal of Mathematical Economics, 2006, 752-770
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Heterogeneous beliefs; Consensus belief; Aggregation of belief; Representative agents;
Other versions of this item:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
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