Belief non-equivalence and financial trade: a comment on a result by Araujo and Sandroni

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.

• Autores: Carvajal Escobar, Andrés Mauricio; Riascos Villegas, Alvaro José
• Tipo de recurso: Work document
• Fecha de publicación: 2006
• Institución: Universidad de los Andes
• Repositorio: Séneca: repositorio Uniandes
• Idioma: eng
• OAI Identifier: oai:repositorio.uniandes.edu.co:1992/8004
• Acceso en línea: http://hdl.handle.net/1992/8004
• Palabra clave: General equilibrium; Heterogeneous beliefs; Existence; Equilibrio (Economía) - Investigaciones - Modelos matemáticos; Incertidumbre (Economía) - Investigaciones - Modelos matemáticos; Mercado financiero - Investigaciones - Modelos econométricos; Macroeconomía - Investigaciones; D52, G1
• Rights: openAccess
• License: http://creativecommons.org/licenses/by-nc-nd/4.0/