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Heterogeneous probabilities in complete asset markets

Author

Listed:
  • CALVET, Laurent

    (Yale University, and CERAS, Paris)

  • GRANDMONT, Jean-Michel

    () (CREST and CNRS, Paris)

  • LEMAIRE, Isabelle

    (CREST-INSEE, Paris)

Abstract

We show in this paper how, in a model of assets exchange in complete competitive markets, heterogeneity of the agent’s sub jective probabilities generates aggregate expenditures for Arrow-Debreu securities that have the gross substitutability property, with the consequences that competitive equilibrium is unique, stable in any tatonnement process, and that the weak axiom of revealed preferences is satisfied in the aggregate. For this result, heterogeneity is required to be highest among people who have the largest risk aversion

Suggested Citation

  • CALVET, Laurent & GRANDMONT, Jean-Michel & LEMAIRE, Isabelle, 1998. "Heterogeneous probabilities in complete asset markets," CORE Discussion Papers 1998019, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:1998019
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    File URL: https://uclouvain.be/en/research-institutes/immaq/core/dp-1998.html
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    Cited by:

    1. Gael GIRAUD & Isabelle MARET, 2002. "Modelling Behavioral Heterogeneity," Working Papers of BETA 2002-22, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    2. Gael Giraud & Isabelle Maret, 2001. "Behavioral Heterogeneity in Large Economies," Working Papers of BETA 2001-08, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

    More about this item

    Keywords

    Heterogeneity; subjective probabilities; complete asset markets.;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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