Subjective Beliefs and Ex Ante Trade

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Subjective Beliefs and Ex Ante Trade

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Title: Subjective Beliefs and Ex Ante Trade
Author: Rigotti, Luca; Shannon, Chris; Strzalecki, Tomasz

Note: Order does not necessarily reflect citation order of authors.

Citation: Rigotti, Luca, Chris Shannon, and Tomasz Strzalecki. 2008. Subjective beliefs and ex ante trade. Econometrica 76(5): 1167-1190.
Access Status: At the direction of the depositing author this work is not currently accessible through DASH.
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Abstract: We study a definition of subjective beliefs applicable to preferences that allow for the perception of ambiguity, and provide a characterization of such beliefs in terms of market behavior. Using this definition, we derive necessary and sufficient conditions for the efficiency of ex ante trade and show that these conditions follow from the fundamental welfare theorems. When aggregate uncertainty is absent, our results show that full insurance is efficient if and only if agents share some common subjective beliefs. Our results hold for a general class of convex preferences, which contains many functional forms used in applications involving ambiguity and ambiguity aversion. We show how our results can be articulated in the language of these functional forms, confirming results existing in the literature, generating new results, and providing a useful tool for applications.
Published Version: doi:10.3982/ECTA7660
Other Sources: http://www.economics.harvard.edu/faculty/strzalecki/papers_strzalecki
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:3637104

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  • FAS Scholarly Articles [6948]
    Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University
 
 

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