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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Text (Working paper version Dec 2009)
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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 Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Depositing User: | Emanuela Sciubba |
| Date Deposited: | 03 Jun 2013 10:29 |
| Last Modified: | 02 Aug 2023 17:04 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/7167 |
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