Belief Non Equivalence and Financial Trade: A Comment on a Result by Araujo and Sandroni

Serie

  • Documentos CEDE

Resumen

  • Aloisio Araujo and Alvaro Sandroni have shown in [1] that in a complete-markets economy in which there are no exogenous bounds to financial trade, existence of equilibrium requires agents with prior beliefs that agree on zero-probability events, and, therefore, with asymptotically homogeneous posteriors. This note illustrates the extent to which the result depends on market completeness: in general, equilibrium requires compatibility of beliefs only up to the revenue transfer opportunities allowed by the market; when the market is sufficiently incomplete, generically on the space of asset returns, even individuals who disagree on zero-probability events meet that constrained-compatibility requirement.

fecha de publicación

  • 2006-07

Líneas de investigación

  • Existence
  • General Equilibrium
  • Heterogeneous Beliefs

Issue

  • 2062