Diverse beliefs

DOI10.1080/17442508.2012.656125zbMATH Open1266.91048arXiv1001.1450OpenAlexW4234474945MaRDI QIDQ3145083FDOQ3145083

Authors:

Publication date: 13 December 2012

Published in: Stochastics (Search for Journal in Brave)

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.

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

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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)

Cites Work

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• Asset price volatility and trading volume with rational beliefs
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• Market Anticipations, Rational Expectations, and Bayesian Analysis
• Heterogeneous beliefs, asset prices, and volatility in a pure exchange economy

Cited In (7)

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

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