Belief heterogeneity and survival in incomplete markets
Coury, T. and Sciubba, Emanuela (2006) Belief heterogeneity and survival in incomplete markets. Working Paper. Birkbeck, University of London, London, UK.
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Abstract
In complete markets economies (Sandroni [15]), or in economies with Pareto optimal outcomes (Blume and Easley [9]), 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: | Monograph (Working Paper) |
|---|---|
| Additional Information: | BWPEF 0613 |
| School: | Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Depositing User: | Administrator |
| Date Deposited: | 28 Mar 2019 06:52 |
| Last Modified: | 02 Aug 2023 17:50 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/26930 |
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