No-Betting-Pareto Dominance

Itzhak Gilboa · Larry Samuelson · David Schmeidler

104 citations0/0 files storedEconometrica

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Game Theory and Voting Systems Decision-Making and Behavioral Economics Economic theories and models

Abstract

We argue that the notion of Pareto dominance is not as compelling in the presence of uncertainty as it is under certainty. In particular, voluntary trade based on differences in tastes is commonly accepted as desirable, because tastes cannot be wrong. By contrast, voluntary trade based on incompatible beliefs may indicate that at least one agent entertains mistaken beliefs. We propose and characterize a weaker, No-Betting, notion of Pareto domination which requires, on top of unanimity of preference, the existence of shared beliefs that can rationalize such preference for each agent.

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References

2019Theory of games and economic behavior 2008Existence of an equilibrium for a competitive economy 1959Theory of Value 1976Agreeing to Disagree 1975On the optimality of equilibrium when the market structure is incomplete 1989Using tax policy to curb speculative short-term trading 1995Consistent Bayesian Aggregation 2013Speculation and Risk Sharing with New Financial Assets*

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2021Uncertainty in Mechanism Design 2012Trading in Derivatives When the Underlying is Scarce 2022Optimal Financial Transaction Taxes

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