Common beliefs and the existence of speculative trade

Research output: Contribution to journalArticlepeer-review

Abstract

This paper shows that if rationality is not common knowledge, the no-trade theorem of Milgrom and Stokey fails to hold. We adopt Monderer and Samet's notion of common p-belief and show that when traders entertain doubts about the rationality of other traders, arbitrarily large volumes of trade as well as rationality may be common p-belief for a large p. Furthermore, rationality and trade may simultaneously be known to arbitrary large (but finite) degree. Journal of Economic Theory Classification numbers: C70, D82, D84.

Original languageEnglish
Pages (from-to)77-96
Number of pages20
JournalGames and Economic Behavior
Volume16
Issue number1
DOIs
StatePublished - Sep 1996
Externally publishedYes

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