Trade with Heterogeneous Multiple Priors

KIER, Kyoto University Paper No. 582

18 Pages Posted: 28 Sep 2004

See all articles by Atsushi Kajii

Atsushi Kajii

Institute of Economic Research, Kyoto University; Singapore Management University

Takashi Ui

Yokohama National University - Department of Economics

Date Written: February 2004

Abstract

This paper presents a general framework to understand the possibility of a purely speculative trade under asymmetric information, where the decision making rule of each trader conforms to the multiple priors model (Gilboa - Schmeidler (1989)): the agents are interested in the minimum of the conditional expected value of trade where the minimum is taken over the set of posteriors. In this framework, we derive a necessary and sufficient condition on the sets of posteriors, thus implicitly on the updating rules adopted by the agents, for non-existence of trade such that it is always common knowledge that every agent expects a positive gain.

Keywords: multiple priors, no trade, dynamic consistency, interim efficiency, rectangularity

JEL Classification: C70, D81, D82, D84

Suggested Citation

Kajii, Atsushi and Ui, Takashi, Trade with Heterogeneous Multiple Priors (February 2004). KIER, Kyoto University Paper No. 582, Available at SSRN: https://ssrn.com/abstract=591023 or http://dx.doi.org/10.2139/ssrn.591023

Atsushi Kajii (Contact Author)

Institute of Economic Research, Kyoto University ( email )

Yoshida-Honmachi
Sakyo-ku
Kyoto 606-8501
JAPAN

HOME PAGE: http://www.kier.kyoto-u.ac.jp/~kajii/

Singapore Management University ( email )

School of Economics
90 Stamford Road
Singapore, 178903
Singapore

Takashi Ui

Yokohama National University - Department of Economics ( email )

79-3 Tokiwadai, Hodogaya-ku
Yokohama 240-8501
Japan

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