Unawareness, beliefs, and speculative trade

Aviad Heifetz, Martin Meier, Burkhard C. Schipper

Research output: Contribution to journalArticlepeer-review

Abstract

We define a generalized state-space model with interactive unawareness and probabilistic beliefs. Such models are desirable for potential applications of asymmetric unawareness. Applying our unawareness belief structures, we show that the common prior assumption is too weak to rule out speculative trade in all states. Yet, we prove a generalized "No-speculative-trade" theorem according to which there cannot be common certainty of strict preference to trade. Moreover, we prove a generalization of the "No-agreeing-to-disagree" theorem.

Original languageEnglish
Pages (from-to)100-121
Number of pages22
JournalGames and Economic Behavior
Volume77
Issue number1
DOIs
StatePublished - Jan 2013

Bibliographical note

Funding Information:
✩ Aviad acknowledges support from the Open University of Israel, Research Grant No. 46106. Martin acknowledges financial support from the Spanish Ministerio de Educación y Ciencia via a Ramon y Cajal Fellowship and under grant ECO2009-12695 as well as from the Fundación Ramón Areces. Burkhard received financial support from the NSF SES-0647811, DFG SFB/TR 15, Minerva Stiftung, and IGA-UCD. We thank two anonymous referees, Leandro Chaves Rêgo, Eddie Dekel, Enrique Kawamura, Li Jing, Salvatore Modica, Klaus Nehring and participants in the Workshop on Unawareness at Stanford University, 2006, NASEM 2006, LOFT 2006, LAMES 2006, SAET 2007, TARK 2007, Stony Brook 2007, ESEM 2007, NBER GE conference 2007, GAMES 2008, and seminars at Bocconi, Max-Planck Institute of Mathematics in the Sciences in Leipzig, UCLA, St. Louis, Tucson, and Venice for helpful comments. Some of the material was circulated previously as a working paper titled “Unawareness, beliefs and games”. Some of the material circulated in earlier versions of the paper is now contained in Meier and Schipper (2012a) and Heifetz et al. (2011b). * Corresponding author. E-mail addresses: aviadhe@openu.ac.il (A. Heifetz), martin.meier@ihs.ac.at (M. Meier), bcschipper@ucdavis.edu (B.C. Schipper).

Keywords

  • Agreement
  • Awareness
  • Common prior
  • Inattention
  • Interactive epistemology
  • Speculative trade
  • Unawareness

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