Abstract
What does it take to survive in the market? Previous literature has proposed (only) sufficient conditions for the consumption share of a trader to converge to 0 (i.e., vanish), which depend on pairwise comparisons of traders’ discounted beliefs. We propose an alternative condition for a trader to vanish that is both necessary and sufficient that depends on the comparison between trader’s discounted beliefs and equilibrium prices. We apply our condition to study the performance of the simple “follow the leader strategy”, which prescribes a trader to mimic the beliefs of the trader who did best in the past. Our condition shows that this strategy leads to certain ruin whenever there is not a unique leader; a result that cannot be obtained using the existing approach.
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