Speculation under unawareness
Speculation under unawareness
“No trade” theorems establish that, in various trading environments, investors who share a common prior will not engage in speculation, as long as expected utility, Bayesian updating and full awareness are imposed. We relax the last assumption by allowing for asymmetric unawareness and examine under which conditions speculative behaviour emerges. We find that if common knowledge is assumed (as in the settings of Aumann, 1976 and Milgrom and Stokey, 1982), unawareness cannot generate speculation. This is not true, however, in settings where no common knowledge is assumed, such as speculation in equilibrium (Geanakoplos, 1989) and betting that is always beneficial (Morris, 1994), unless stronger conditions on awareness are imposed.
Unawareness, Trade, Speculation, Knowledge, Common knowledge, Bounded perception, Awareness
598-615
Galanis, Spyros
66c2b7af-6f28-4319-be60-787796b4054c
1 May 2018
Galanis, Spyros
66c2b7af-6f28-4319-be60-787796b4054c
Abstract
“No trade” theorems establish that, in various trading environments, investors who share a common prior will not engage in speculation, as long as expected utility, Bayesian updating and full awareness are imposed. We relax the last assumption by allowing for asymmetric unawareness and examine under which conditions speculative behaviour emerges. We find that if common knowledge is assumed (as in the settings of Aumann, 1976 and Milgrom and Stokey, 1982), unawareness cannot generate speculation. This is not true, however, in settings where no common knowledge is assumed, such as speculation in equilibrium (Geanakoplos, 1989) and betting that is always beneficial (Morris, 1994), unless stronger conditions on awareness are imposed.
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Speculation Under Unawareness
- Accepted Manuscript
More information
Accepted/In Press date: 13 March 2018
e-pub ahead of print date: 13 March 2018
Published date: 1 May 2018
Keywords:
Unawareness, Trade, Speculation, Knowledge, Common knowledge, Bounded perception, Awareness
Identifiers
Local EPrints ID: 419154
URI: http://eprints.soton.ac.uk/id/eprint/419154
ISSN: 0899-8256
PURE UUID: 993df80e-6284-45c6-82f7-cca75ad6b496
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Date deposited: 06 Apr 2018 16:30
Last modified: 05 Sep 2024 01:41
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Author:
Spyros Galanis
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