Unawareness, Beliefs and Speculative Trade

Heifetz, Aviad and Meier, Martin and Schipper, Burkhard C (2009): Unawareness, Beliefs and Speculative Trade.

Abstract

We define a generalized state-space model with interactive unawareness and probabilistic beliefs. Such models are desirable for potential applications of asymmetric unawareness. We compare unawareness with probability zero belief. Applying our unawareness belief structures, we show that the common prior assumption is too weak to rule out speculative trade in all states. Yet, we prove a generalized "No-trade" theorem according to which there can not be common certainty of strict preference to trade. Moreover, we show a generalization of the "No-agreeing-to-disagree" theorem.

• Item Type: MPRA Paper
• Language: English
• Keywords: unawareness; awareness; zero probability; type-space; common prior; agreement; speculative trade; interactive epistemology
• Subjects: D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D53 - Financial Markets; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C70 - General; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D80 - General; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games

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