Diverse Beliefs

41 Pages Posted: 14 Oct 2009  

A. A. Brown

University of Cambridge - Centre for Mathematical Sciences

L. C. G. Rogers

University of Cambridge - Centre for Mathematical Sciences

Date Written: September 15, 2009

Abstract

This paper presents a general framework for studying diverse beliefs in dynamic economies. Within this general framework, the characterization of a central-planner general equilibrium turns out to be very easy to derive, and leads to a range of interesting applications. We show how for an economy with log investors holding diverse beliefs, rational overconfidence is to be expected; volume-of-trade effects are effectively modeled; a range of sample moments from macroeconomic growth data can be closely approximated; and the Keynesian ‘beauty contest’ can be modeled and analysed. We remark that models where agents receive private information can formally be considered as models of diverse beliefs.

Keywords: Diverse beliefs, Heterogeneous beliefs, Beauty Contests, Trading Volumes

JEL Classification: D5, D84, G11, G12

Suggested Citation

Brown, A. A. and Rogers, L. C. G., Diverse Beliefs (September 15, 2009). Available at SSRN: https://ssrn.com/abstract=1488376 or http://dx.doi.org/10.2139/ssrn.1488376

Angus Brown

University of Cambridge - Centre for Mathematical Sciences ( email )

Cambridge, CB3 9DD
United Kingdom

L. C. G. (Chris) Rogers (Contact Author)

University of Cambridge - Centre for Mathematical Sciences ( email )

Cambridge, CB3 9DD
United Kingdom

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