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Speculation under unawareness

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  • Galanis, Spyros

Abstract

“No trade” theorems establish that, in various trading environments, investors who share a common prior will not engage in speculation, as long as expected utility, Bayesian updating and full awareness are imposed. We relax the last assumption by allowing for asymmetric unawareness and examine under which conditions speculative behaviour emerges. We find that if common knowledge is assumed (as in the settings of Aumann, 1976 and Milgrom and Stokey, 1982), unawareness cannot generate speculation. This is not true, however, in settings where no common knowledge is assumed, such as speculation in equilibrium (Geanakoplos, 1989) and betting that is always beneficial (Morris, 1994), unless stronger conditions on awareness are imposed.

Suggested Citation

  • Galanis, Spyros, 2018. "Speculation under unawareness," Games and Economic Behavior, Elsevier, vol. 109(C), pages 598-615.
    • Handle: RePEc:eee:gamebe:v:109:y:2018:i:c:p:598-615
    DOI: 10.1016/j.geb.2018.03.001
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    Cited by:

    1. Spyros Galanis, 2021. "Speculative trade and the value of public information," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(1), pages 53-68, February.
    2. Spyros Galanis, 2021. "Dynamic consistency, valuable information and subjective beliefs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(4), pages 1467-1497, June.
    3. Wesley H. Holliday, 2024. "A partial-state space model of unawareness," Papers 2412.00897, arXiv.org, revised Dec 2024.
    4. Galanis Spyros & Kotronis Stelios, 2021. "Updating Awareness and Information Aggregation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 21(2), pages 613-635, June.
    5. Yoshihiko Tada, 2024. "AU Introspection and Symmetry under non-trivial unawareness," Theory and Decision, Springer, vol. 97(2), pages 409-421, September.
    6. Adam Dominiak & Ani Guerdjikova, 2021. "Pessimism and optimism towards new discoveries," Theory and Decision, Springer, vol. 90(3), pages 321-370, May.
    7. Gaia Belardinelli & Burkhard C. Schipper, 2023. "Implicit Knowledge in Unawareness Structures," Working Papers 360, University of California, Davis, Department of Economics.

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    More about this item

    Keywords

    Unawareness; Trade; Speculation; Knowledge; Common knowledge; Bounded perception; Awareness;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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