Trade with Heterogeneous Beliefs
The paper analyzes an economy with asymmetric information in which agents trade in contingent assets. The new feature in the model is that each agent may have any prior belief on the states of nature and thus the posterior belief of an agent maybe any probability distribution that is consistent with his private information. We study two solution concepts: Equilibrium, which assumes rationality and market clearing, and common knowledge equilibrium (CKE) which makes the stronger assumption that rationality, market clearing, and the parameters which de?ne the economy are common knowledge. The two main results characterize the set of equilibrium prices and the set of CKE prices in terms of parameters which specify for each state s and event E the amount of money in the hands of agents who know the event E at the state s. The characterizations that are obtained apply to a broad class of preferences which include all preferences that can be represented by the expectation of a state dependent monotone utility function. One implication of these results is a characterization of the information that is revealed in a CKE.
(This abstract was borrowed from another version of this item.)
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Morris, Stephen, 1994. "Trade with Heterogeneous Prior Beliefs and Asymmetric Information," Econometrica, Econometric Society, vol. 62(6), pages 1327-47, November.
- Guesnerie, R., 1999.
"Anchoring Economic Predictions in Common Knowledge,"
DELTA Working Papers
1999-06, DELTA (Ecole normale supérieure).
- R. Guesnerie, 2002. "Anchoring Economic Predictions in Common Knowledge," Econometrica, Econometric Society, vol. 70(2), pages 439-480, March.
- Jayasri Dutta & Stephen Morris, .
""The Revelation of Information and Self-Fulfilling Beliefs'',"
CARESS Working Papres
95-03, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
- Dutta, Jayasri & Morris, Stephen, 1997. "The Revelation of Information and Self-Fulfilling Beliefs," Journal of Economic Theory, Elsevier, vol. 73(1), pages 231-244, March.
- Jayasri Dutta & Stephen Morris, . "The Revelation of Information and Self-Fulfilling Beliefs," Penn CARESS Working Papers 269cceedcbd401a5e46548b88, Penn Economics Department.
- DUTTA, Jayasri & MORRIS, Stephen, 1995. "The Revelation of Information and Self-Fulfilling Beliefs," CORE Discussion Papers 1995076, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Stephen Morris, .
"Justifying Rational Expectations,"
Penn CARESS Working Papers
9c26245814018c6e9fadb3767, Penn Economics Department.
- Gabriel Desgranges, 2000. "CK-Equilibria and Informational Efficiency in a Competitive Economy," Econometric Society World Congress 2000 Contributed Papers 1296, Econometric Society.
- Elchanan Ben-Porath & Aviad Heifetz, 2005.
Economics Working Papers
0057, Institute for Advanced Study, School of Social Science.
- Elchanan Ben-Porath & Aviad Heifetz, 2006. "Rationalizable Expectations," Discussion Paper Series dp461, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
- Elchanan Ben-Porath & Aviad Heifetz, 2007. "Rationalizable Expectations," Levine's Bibliography 122247000000001499, UCLA Department of Economics.
- Radner, Roy, 1979. "Rational Expectations Equilibrium: Generic Existence and the Information Revealed by Prices," Econometrica, Econometric Society, vol. 47(3), pages 655-78, May.
- Kreps, David M., 1977. "A note on "fulfilled expectations" equilibria," Journal of Economic Theory, Elsevier, vol. 14(1), pages 32-43, February.
When requesting a correction, please mention this item's handle: RePEc:cla:levrem:122247000000001494. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David K. Levine)
If references are entirely missing, you can add them using this form.