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Trade with Heterogeneous Multiple Priors

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Author Info

  • Atsushi Kajii

    (Institute of Economic Research, Kyoto University)

  • Takashi Ui

    (Faculty of Economics, Yokohama National University)

Abstract

This paper presents a general framework to understand the possibility of a purely speculative trade under asymmetric information, where the decision making rule of each trader conforms to the multiple priors model (Gibloa and Schmeidler, 1989): the agents are interested in the minimum of the conditional expected value of trade where the minimum is taken over the set of posteriors. In this framework, we derive a necessary and sufficient condition on the sets of posteriors, thus implicitly on the updating rules adopted by the agents, for non-existence of trade such that it is always common knowledge that every agent expects a positive gain.

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Bibliographic Info

Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 582.

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Length: 18 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:kyo:wpaper:582

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Related research

Keywords: no trade; dynamic consistency; interim efficiency; rectangularity;

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References

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  1. Dov Samet, 1997. "Common Priors and Separation of Convex Sets," Game Theory and Information, EconWPA 9701002, EconWPA.
  2. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
  3. Billot, A. & Chateauneuf, A. & Gilboa, I. & Tallon, J.-M., 1998. "Sharing Beliefs: Between Agreeing and Disagreeing," Papiers d'Economie Mathématique et Applications, Université Panthéon-Sorbonne (Paris 1) 98.30, Université Panthéon-Sorbonne (Paris 1).
  4. Epstein, Larry G. & Schneider, Martin, 2003. "Recursive multiple-priors," Journal of Economic Theory, Elsevier, Elsevier, vol. 113(1), pages 1-31, November.
  5. Morris, Stephen, 1994. "Trade with Heterogeneous Prior Beliefs and Asymmetric Information," Econometrica, Econometric Society, Econometric Society, vol. 62(6), pages 1327-47, November.
  6. Grant, Simon & Kajii, Atsushi & Polak, Ben, 2000. "Decomposable Choice under Uncertainty," Journal of Economic Theory, Elsevier, Elsevier, vol. 92(2), pages 169-197, June.
  7. Feinberg, Yossi, 2000. "Characterizing Common Priors in the Form of Posteriors," Journal of Economic Theory, Elsevier, Elsevier, vol. 91(2), pages 127-179, April.
  8. Gilboa Itzhak & Schmeidler David, 1993. "Updating Ambiguous Beliefs," Journal of Economic Theory, Elsevier, Elsevier, vol. 59(1), pages 33-49, February.
  9. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, Elsevier, vol. 26(1), pages 17-27, February.
  10. Atsushi Kajii & Takashi Ui, 2004. "Incomplete Information Games with Multiple Priors," KIER Working Papers, Kyoto University, Institute of Economic Research 583, Kyoto University, Institute of Economic Research.
  11. Atsushi Kajii & Takashi Ui, 2004. "Agreeable Bets with Multiple Priors," KIER Working Papers, Kyoto University, Institute of Economic Research 581, Kyoto University, Institute of Economic Research.
  12. Robert J Aumann, 1999. "Agreeing to Disagree," Levine's Working Paper Archive 512, David K. Levine.
  13. Harsanyi, John C., 1994. "Games with Incomplete Information," Nobel Prize in Economics documents, Nobel Prize Committee 1994-1, Nobel Prize Committee.
  14. Ng, Man-Chung, 2003. "On the duality between prior beliefs and trading demands," Journal of Economic Theory, Elsevier, Elsevier, vol. 109(1), pages 39-51, March.
  15. Halevy, Yoram, 2004. "The possibility of speculative trade between dynamically consistent agents," Games and Economic Behavior, Elsevier, Elsevier, vol. 46(1), pages 189-198, January.
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Citations

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Cited by:
  1. Atsushi Kajii & Takashi Ui, 2005. "Incomplete Information Games With Multiple Priors," The Japanese Economic Review, Japanese Economic Association, Japanese Economic Association, vol. 56(3), pages 332-351.
  2. Atsushi Kajii & Takashi Ui, 2004. "Agreeable Bets with Multiple Priors," KIER Working Papers, Kyoto University, Institute of Economic Research 581, Kyoto University, Institute of Economic Research.

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