Heterogenous probabilities in complete asset markets
, J.-M. Grandmont
, I. Lemaire
In: Shigeo Kusuoka, Toru Maruyama Eds, 1999, Advances in Mathematical Economics, 1 th Edition , Tokyo: Springer, pp. 3-15
Heterogeneity
subjective probabilities
complete asset markets
Abstract
We show in this paper how, in a model of assets exchange in complete competitive markets, heterogeneity of the agents’ subjective probabilities generates aggregate expenditures for Arrow-Debreu securities that have the gross substitutability property, with the consequences that competitive equilibrium is unique, stable in any tatônnement process, and that the weak axiom of revealed preferences is satisfied in the aggregate. For this result, heterogeneity is required to be highest among people who have the largest risk aversion.