Abstract

AbstractIn environments with expected utility, it has long been established that speculative trade cannot occur and that the value of public information is negative in economies with risk‐sharing and no aggregate uncertainty. We show that these results are still true even if we relax expected utility, so that either Dynamic Consistency (DC) or Consequentialism is violated. We characterize no speculative trade in terms of a weakening of DC and find that Consequentialism is not required. Moreover, we show that a weakening of both DC and Consequentialism is sufficient for the value of public information to be negative. We therefore generalize these important results for convex preferences which contain several classes of ambiguity averse preferences.

Highlights

  • In markets with subjective expected utility (SEU), it has long been established by Milgrom and Stokey (1982) that speculative trade cannot occur

  • The first is Dynamic Consistency (DC), which requires that an action plan is optimal when evaluated with the updated preferences of a later period, if and only if it is optimal when evaluated with the preferences of an earlier period

  • The purpose of this paper is to examine whether no speculative trade and the negative value of public information for mutual insurance are still valid in general models with convex preferences, where either DC or Consequentialism is violated

Read more

Summary

Introduction

In markets with subjective expected utility (SEU), it has long been established by Milgrom and Stokey (1982) that speculative trade cannot occur. The purpose of this paper is to examine whether no speculative trade and the negative value of public information for mutual insurance are still valid in general models with convex preferences, where either DC or Consequentialism is violated.

Objectives
Results
Conclusion
Full Text
Paper version not known

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call

Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.