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Speculation under unawareness

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
0899-8256
598-615
Galanis, Spyros
66c2b7af-6f28-4319-be60-787796b4054c
Galanis, Spyros
66c2b7af-6f28-4319-be60-787796b4054c

Galanis, Spyros (2018) Speculation under unawareness. Games and Economic Behavior, 109, 598-615. (doi:10.1016/j.geb.2018.03.001).

Record type: Article

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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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
DOI: doi:10.1016/j.geb.2018.03.001
ISSN: 0899-8256
PURE UUID: 993df80e-6284-45c6-82f7-cca75ad6b496
ORCID for Spyros Galanis: ORCID iD orcid.org/0000-0003-4286-7449

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Date deposited: 06 Apr 2018 16:30
Last modified: 16 Mar 2024 06:26

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Author: Spyros Galanis ORCID iD

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