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    Belief heterogeneity and survival in incomplete markets

    Coury, T. and Sciubba, Emanuela (2012) Belief heterogeneity and survival in incomplete markets. Economic Theory 49 (1), pp. 37-58. ISSN 0938-2259.

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    Abstract

    In complete markets economies (Sandroni [16]), or in economies with Pareto optimal outcomes (Blume and Easley [10]), the market selection hypothesis holds, as long as traders have identical discount factors. Traders who survive must have beliefs that merge with the truth. We show that in incomplete markets, regardless of traders’ discount factors, the market selects for a range of beliefs, at least some of which do not merge with the truth. We also show that impatient traders with incorrect beliefs can survive and that these incorrect beliefs impact prices. These beliefs may be chosen so that they are far from the truth.

    Metadata

    Item Type: Article
    Additional Information: The final publication is available at link.springer.com
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Emanuela Sciubba
    Date Deposited: 03 Jun 2013 10:29
    Last Modified: 31 Jul 2019 11:53
    URI: http://eprints.bbk.ac.uk/id/eprint/7167

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