Diverse beliefs

DOI10.1080/17442508.2012.656125MaRDI QIDQ3145083zbMATH OpenOpenAlexFDO

Authors

Publication date 13 December 2012

Published in Stochastics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1001.1450

zbMATH Keywords

equilibriumprivate informationbeauty contestdiverse beliefsdynamic general equilibrium modelmistaken beliefs

Mathematics Subject Classification ID

General equilibrium theory (91B50) Dynamic stochastic general equilibrium theory (91B51) Stochastic models in economics (91B70) Heterogeneous agent models (91B69)

Abstract: This paper presents a general framework for studying diverse beliefs in dynamic economies. Within this general framework, the characterization of a central-planner general equilbrium turns out to be very easy to derive, and leads to a range of interesting applications. We show how for an economy with log investors holding diverse beliefs, rational overconfidence is to be expected; volume-of-trade effects are effectively modelled; the Keynesian `beauty contest' can be modelled and analysed; and bubbles and crashes arise naturally. We remark that models where agents receive private information can formally be considered as models of diverse beliefs.

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Cites work

• scientific article; zbMATH DE number 1478492 (Why is no real title available?)
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• Speculative trading with rational beliefs and endogenous uncertainty

Cited in

(6)

• The influence of financial practice in developing mathematical probability. Submitted for a special edition of \textit{Synthese}, ``Enabling mathematical cultures
• Informational inefficiency in financial markets
• Solving DSGE portfolio choice models with dispersed private information
• The effect of trading futures on short sale constraints
• Equilibrium securitization with diverse beliefs
• Modeling diverse expectations in an aggregated New Keynesian model

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