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Unawareness, Beliefs, and Speculative Trade

  • Aviad Heifetz
  • Martin Meier
  • Burkhard Schipper

    (Department of Economics, University of California Davis)

We define a generalized state-space model with interactive unawareness and probabilistic beliefs. Such models are desirable for potential applications of asymmetric unawareness. 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-speculative-trade" theorem according to which there can not be common certainty of strict preference to trade. Moreover, we prove a generalization of the "No-agreeing-to-disagree" theorem. Finally, we show the existence of a universal unawareness belief type space.

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File URL: http://wp.econ.ucdavis.edu/11-8.pdf
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Paper provided by University of California, Davis, Department of Economics in its series Working Papers with number 118.

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Length: 49
Date of creation: 25 Oct 2011
Date of revision:
Handle: RePEc:cda:wpaper:11-8
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  1. Heifetz, Aviad & Meier, Martin & Schipper, Burkhard C, 2011. "Prudent rationalizability in generalized extensive-form games," MPRA Paper 30220, University Library of Munich, Germany.
  2. Heinsalu, Sander, 2012. "Equivalence of the information structure with unawareness to the logic of awareness," Journal of Economic Theory, Elsevier, vol. 147(6), pages 2453-2468.
  3. Simon Grant & John Quiggin, 2009. "Inductive reasoning about unawareness," Risk & Uncertainty Working Papers WPR09_1, Risk and Sustainable Management Group, University of Queensland.
  4. Spyros Galanis, 2013. "Unawareness of theorems," Economic Theory, Springer, vol. 52(1), pages 41-73, January.
  5. Feinberg, Yossi, 2000. "Characterizing Common Priors in the Form of Posteriors," Journal of Economic Theory, Elsevier, vol. 91(2), pages 127-179, April.
  6. Heifetz, Aviad & Meier, Martin & Schipper, Burkhard C., 2005. "Interactive Unawareness," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 52, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  7. Halpern, Joseph Y., 2001. "Alternative Semantics for Unawareness," Games and Economic Behavior, Elsevier, vol. 37(2), pages 321-339, November.
  8. Salvatore Modica, 2008. "Unawareness, priors and posteriors," Decisions in Economics and Finance, Springer, vol. 31(2), pages 81-94, November.
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  10. Halpern, Joseph Y. & Rego, Leandro Chaves, 2008. "Interactive unawareness revisited," Games and Economic Behavior, Elsevier, vol. 62(1), pages 232-262, January.
  11. Stijn Van Nieuwerburgh & Laura Veldkamp, 2010. "Information Acquisition and Under-Diversification," Review of Economic Studies, Oxford University Press, vol. 77(2), pages 779-805.
  12. Galanis, Spyros, 2013. "Trade and the value of information under unawareness," Discussion Paper Series In Economics And Econometrics 1313, Economics Division, School of Social Sciences, University of Southampton.
  13. Joseph Y. Halpern, 2000. "Characterizing the Common Prior Assumption," Game Theory and Information 0004009, EconWPA.
  14. Oliver Board, 2006. "Object-Based Unawareness," Working Papers 245, University of Pittsburgh, Department of Economics, revised Jan 2006.
  15. Oliver Board, 2008. "Object-Based Unawareness: Theory and Applications," Working Papers 378, University of Pittsburgh, Department of Economics, revised Mar 2009.
  16. Martin Meier & Burkhard Schipper, 2012. "Bayesian Games with Unawareness and Unawareness Perfection," Working Papers 129, University of California, Davis, Department of Economics.
  17. Ewerhart, Christian, 2001. "Heterogeneous Awareness and the Possibility of Agreement," Sonderforschungsbereich 504 Publications 01-30, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  18. Heifetz, Aviad & Meier, Martin & Schipper, Burkhard C., 2008. "A canonical model for interactive unawareness," Games and Economic Behavior, Elsevier, vol. 62(1), pages 304-324, January.
  19. Aviad Heifetz & Martin Meier & Burkhard Schipper, 2011. "Dynamic unawareness and rationalizable behavior," Working Papers 113, University of California, Davis, Department of Economics.
  20. Heinsalu, Sander, 2014. "Universal type structures with unawareness," Games and Economic Behavior, Elsevier, vol. 83(C), pages 255-266.
  21. Li, Jing, 2009. "Information structures with unawareness," Journal of Economic Theory, Elsevier, vol. 144(3), pages 977-993, May.
  22. Samet, Dov, 1990. "Ignoring ignorance and agreeing to disagree," Journal of Economic Theory, Elsevier, vol. 52(1), pages 190-207, October.
  23. Morris, Stephen, 1995. "The Common Prior Assumption in Economic Theory," Economics and Philosophy, Cambridge University Press, vol. 11(02), pages 227-253, October.
  24. Dov Samet, 1997. "Common Priors and Separation of Convex Sets," Game Theory and Information 9701002, EconWPA.
  25. Eddie Dekel & Barton L. Lipman & Aldo Rustichini, 1998. "Standard State-Space Models Preclude Unawareness," Econometrica, Econometric Society, vol. 66(1), pages 159-174, January.
  26. Paul Milgrom & Nancy L.Stokey, 1979. "Information, Trade, and Common Knowledge," Discussion Papers 377R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  27. 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.
  28. Heifetz, Aviad, 2006. "The positive foundation of the common prior assumption," Games and Economic Behavior, Elsevier, vol. 56(1), pages 105-120, July.
  29. Samet, Dov, 1999. "Bayesianism without learning," Research in Economics, Elsevier, vol. 53(2), pages 227-242, June.
  30. 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.
  31. 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.
  32. 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.
  33. Spyros Galanis, 2011. "Syntactic foundations for unawareness of theorems," Theory and Decision, Springer, vol. 71(4), pages 593-614, October.
  34. Morris, Stephen, 1994. "Trade with Heterogeneous Prior Beliefs and Asymmetric Information," Econometrica, Econometric Society, vol. 62(6), pages 1327-47, November.
  35. Modica, Salvatore & Rustichini, Aldo, 1999. "Unawareness and Partitional Information Structures," Games and Economic Behavior, Elsevier, vol. 27(2), pages 265-298, May.
  36. Monderer, Dov & Samet, Dov, 1989. "Approximating common knowledge with common beliefs," Games and Economic Behavior, Elsevier, vol. 1(2), pages 170-190, June.
  37. Martin Meier & Burkhard C. Schipper, 2013. "Speculative Trade under Unawareness: The Infinite Case," Working Papers 102, University of California, Davis, Department of Economics.
  38. Harborne W. Stuart Jr. & Hong Hu, 2002. "An epistemic analysis of the Harsanyi transformation," International Journal of Game Theory, Springer, vol. 30(4), pages 517-525.
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