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Unawareness, Beliefs and Speculative Trade

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  • Heifetz, Aviad
  • Meier, Martin
  • Schipper, Burkhard C

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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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18437.

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Date of creation: 06 Nov 2009
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Handle: RePEc:pra:mprapa:18437

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

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References

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  1. Samet, Dov, 1998. "Common Priors and Separation of Convex Sets," Games and Economic Behavior, Elsevier, vol. 24(1-2), pages 172-174, July.
  2. 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.
  3. Heifetz, Aviad & Meier, Martin & Schipper, Burkhard C., 2006. "Interactive unawareness," Journal of Economic Theory, Elsevier, vol. 130(1), pages 78-94, September.
  4. Halpern, Joseph Y. & Rego, Leandro Chaves, 2008. "Interactive unawareness revisited," Games and Economic Behavior, Elsevier, vol. 62(1), pages 232-262, January.
  5. Martin Meier & Burkhard Schipper, 2013. "Bayesian Games with Unawareness and Unawareness Perfection," Working Papers 139, University of California, Davis, Department of Economics.
  6. 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.
  7. Thomas Leonard, 2008. "Richard H. Thaler, Cass R. Sunstein, Nudge: Improving decisions about health, wealth, and happiness," Constitutional Political Economy, Springer, vol. 19(4), pages 356-360, December.
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  27. 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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  32. Martin Meier & Burkhard C. Schipper, 2013. "Speculative Trade under Unawareness: The Infinite Case," Working Papers 102, University of California, Davis, Department of Economics.
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  35. Ewerhart, Christian, 2001. "Heterogeneous Awareness and the Possibility of Agreement," Sonderforschungsbereich 504 Publications 01-30, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
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Citations

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Cited by:
  1. Auster, Sarah, 2013. "Asymmetric awareness and moral hazard," Games and Economic Behavior, Elsevier, vol. 82(C), pages 503-521.
  2. Heinsalu, Sander, 2014. "Universal type structures with unawareness," Games and Economic Behavior, Elsevier, vol. 83(C), pages 255-266.
  3. Spyros Galanis, 2013. "Unawareness of theorems," Economic Theory, Springer, vol. 52(1), pages 41-73, January.
  4. Meier, Martin & Schipper, Burkhard C, 2010. "Speculative Trade under Unawareness: The Infinite Case," MPRA Paper 20632, University Library of Munich, Germany.
  5. Schipper, Burkhard C, 2010. "Revealed Unawareness," MPRA Paper 21491, University Library of Munich, Germany.
  6. Sarah Auster, 2011. "Asymmetric Awareness and Moral Hazard," Economics Working Papers ECO2011/, European University Institute.

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