Belief heterogeneity and survival in incomplete markets

@article{Coury2012BeliefHA,
  title={Belief heterogeneity and survival in incomplete markets},
  author={Tarek Coury and Emanuela Sciubba},
  journal={Economic Theory},
  year={2012},
  volume={49},
  pages={37-58}
}
In complete markets economies (Sandroni in Econometrica 68:1303–1341, 2000), or in economies with Pareto optimal outcomes (Blume and Easley in Econometrica 74:926–966, 2006), the market selection hypothesis holds, as long as traders have identical discount factors. Traders who survive must have beliefs that merge with the truth. We show that in incomplete markets, regardless of traders’ discount factors, the market selects for a range of beliefs, at least some of which do not merge with the… CONTINUE READING