Trade with Heterogeneous Prior Beliefs and Asymmetric Information

Stephen Edward Morris

277 citations0/0 files storedEconometrica

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Economic theories and models Financial Markets and Investment Strategies Game Theory and Applications

Abstract

'No trade' theorems have shown that new information will not lead to trade when agents share the same prior beliefs. This paper explores the structure of no trade theorems with heterogeneous prior beliefs. It is shown how different notions of efficiency under asymmetric information--ex ante, interim, ex post--are related to agents' prior beliefs as well as incentive compatible and public versions of those efficiency concepts. These efficiency results are used to characterize necessary and sufficient conditions on agents' beliefs for no trade theorems in different trading environments. Copyright 1994 by The Econometric Society.

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References

1992Game theory: analysis of conflict 1976Agreeing to Disagree 2004Games with Incomplete Information Played by “Bayesian” Players, I–III: Part I. The Basic Model 1982Information, trade and common knowledge 1982On the Possibility of Speculation under Rational Expectations 1962The Theory of Linear Economic Models 1983Efficient and Durable Decision Rules with Incomplete Information 1979Rational Expectations Equilibrium: Generic Existence and the Information Revealed by Prices

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