No trade and yes trade theorems for heterogeneous priors

Alia Gizatulina and Ziv Hellman

Journal of Economic Theory, 2019, vol. 182, issue C, 161-184

Abstract: We show that contrary to currently widely-held misperceptions, the classical no trade theorem obtains even under heterogeneous priors. That is, when priors are not common, speculative trade is still impossible under common knowledge of rationality. However, trade becomes mutually acceptable if at least one party to the trade puts at least some slight probability on the other party being irrational. We also derive bounds on disagreements in the case of heterogeneous priors and common p-beliefs.

Keywords: Speculative trade; No trade theorem; No betting theorem; Common priors; Common knowledge; Rationality (search for similar items in EconPapers)
JEL-codes: C70 C72 D82 D84 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:182:y:2019:i:c:p:161-184

DOI: 10.1016/j.jet.2019.04.006

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