Subjective Beliefs and Ex Ante Trade
AbstractWe study a definition of subjective beliefs applicable to preferences that allow for the perception of ambiguity, and provide a characterization of such beliefs in terms of market behavior. Using this definition, we derive necessary and sufficient conditions for the efficiency of ex ante trade and show that these conditions follow from the fundamental welfare theorems. When aggregate uncertainty is absent, our results show that full insurance is efficient if and only if agents share some common subjective beliefs. Our results hold for a general class of convex preferences, which contains many functional forms used in applications involving ambiguity and ambiguity aversion. We show how our results can be articulated in the language of these functional forms, confirming results existing in the literature, generating new results, and providing a useful tool for applications.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Harvard University Department of Economics in its series Scholarly Articles with number 3637104.
Date of creation: 2008
Date of revision:
Publication status: Published in Econometrica -Evanston Ill-
Other versions of this item:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Alain Chateauneuf & Luciano De Castro, 2011. "Ambiguity Aversion and Absence of Trade," Discussion Papers 1535, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Rose-Anne Dana & Frank Riedel, 2010.
"Intertemporal Equilibria with Knightian Uncertainty,"
440, Bielefeld University, Center for Mathematical Economics.
- Dana, Rose-Anne & Riedel, Frank, 2013. "Intertemporal equilibria with Knightian uncertainty," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1582-1605.
- Rose-Anne Dana & Frank Riedel, 2013. "Intertemporal equilibria with Knightian Uncertainty," Working Papers 16, Department of Research, Ipag Business School.
- Kajii, Atsushi & Ui, Takashi, 2009.
"Interim efficient allocations under uncertainty,"
Journal of Economic Theory,
Elsevier, vol. 144(1), pages 337-353, January.
- Martins-da-Rocha, V. Filipe, 2010.
"Interim efficiency with MEU-preferences,"
Journal of Economic Theory,
Elsevier, vol. 145(5), pages 1987-2017, September.
- Martins-da-Rocha, Victor Filipe, 2009. "Interim efficiency with MEU-preferences," Economics Working Papers (Ensaios Economicos da EPGE) 696, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
- Philipp Karl ILLEDITSCH, 2009. "Ambiguous Information, Risk Aversion, and Asset Pricing," 2009 Meeting Papers 802, Society for Economic Dynamics.
- Ludovic Renou & Karl H. Schlag, 2009. "From Ordients to Optimization: Substitution Effects without Differentiability," Discussion Papers in Economics 09/6, Department of Economics, University of Leicester.
- Chambers, Christopher P. & Echenique, Federico, 2012. "When does aggregation reduce risk aversion?," Games and Economic Behavior, Elsevier, vol. 76(2), pages 582-595.
- repec:hal:journl:halshs-00281582 is not listed on IDEAS
- repec:ner:dauphi:urn:hdl:123456789/5375 is not listed on IDEAS
- Alain Chateauneuf & Luciano I. de Castro, 2011.
"Ambiguity Aversion and Trade,"
1526, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Luca Rigotti & Matthew Ryan & Rhema Vaithianathan, 2011. "Optimism and firm formation," Economic Theory, Springer, vol. 46(1), pages 1-38, January.
- Ani Guerdijkova & Emanuela Sciubba, 2012. "Survival with Ambiguity," Birkbeck Working Papers in Economics and Finance 1216, Birkbeck, Department of Economics, Mathematics & Statistics.
- Dominiak, Adam & Eichberger, Jürgen & Lefort, Jean-Philippe, 2012. "Agreeable trade with optimism and pessimism," Mathematical Social Sciences, Elsevier, vol. 64(2), pages 119-126.
- repec:hal:journl:halshs-00470670 is not listed on IDEAS
- Nabil I. Al-Najjar & Luciano De Castro, 2010. "Uncertainty, Efficiency and Incentive Compatibility," Discussion Papers 1532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Reinhard Engels).
If references are entirely missing, you can add them using this form.