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The identification of beliefs from asset demand

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  • Kubler, Felix
  • Polemarchakis, Herakles

Abstract

The demand for assets as prices and initial wealth vary identifies beliefs and attitudes towards risk. We derive conditions that guarantee identification with no knowledge either of the cardinal utility index or of the distribution of future endowments or payoffs of assets; the argument applies even if the asset market is incomplete and demand is observed only locally.

Suggested Citation

  • Kubler, Felix & Polemarchakis, Herakles, 2015. "The identification of beliefs from asset demand," Economic Research Papers 270007, University of Warwick - Department of Economics.
    • Handle: RePEc:ags:uwarer:270007
    DOI: 10.22004/ag.econ.270007
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    References listed on IDEAS

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    1. Robert J. Shiller, 2015. "Irrational Exuberance," Economics Books, Princeton University Press, edition 3, number 10421.
    2. repec:dau:papers:123456789/13505 is not listed on IDEAS
    3. Philip Dybvig & Heraklis Polemarchakis, 1981. "Recovering Cardinal Utility," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 48(1), pages 159-166.
    4. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    5. Jaroslav Borovička & Lars Peter Hansen & José A. Scheinkman, 2016. "Misspecified Recovery," Journal of Finance, American Finance Association, vol. 71(6), pages 2493-2544, December.
    6. Chiappori, P. -A. & Ekeland, I. & Kubler, F. & Polemarchakis, H. M., 2004. "Testable implications of general equilibrium theory: a differentiable approach," Journal of Mathematical Economics, Elsevier, vol. 40(1-2), pages 105-119, February.
    7. Kubler, F. & Chiappori, P. -A. & Ekeland, I. & Polemarchakis, H. M., 2002. "The Identification of Preferences from Equilibrium Prices under Uncertainty," Journal of Economic Theory, Elsevier, vol. 102(2), pages 403-420, February.
    8. Steve Ross, 2015. "The Recovery Theorem," Journal of Finance, American Finance Association, vol. 70(2), pages 615-648, April.
    9. Dybvig, Philip H & Rogers, L C G, 1997. "Recovery of Preferences from Observed Wealth in a Single Realization," The Review of Financial Studies, Society for Financial Studies, vol. 10(1), pages 151-174.
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    11. Felix Kubler & Larry Selden & Xiao Wei, 2014. "Asset Demand Based Tests of Expected Utility Maximization," American Economic Review, American Economic Association, vol. 104(11), pages 3459-3480, November.
    12. Varian, Hal R., 1983. "Nonparametric Tests of Models of Investor Behavior," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 18(3), pages 269-278, September.
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    15. Polemarchakis, H. M., 1979. "Is there an income effect?," Journal of Economic Theory, Elsevier, vol. 21(3), pages 380-388, December.
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    Cited by:

    1. Anastasia Burkovskaya, 2022. "A model of state aggregation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(1), pages 121-149, February.
    2. Gorno, Leandro, 2019. "Revealed preference and identification," Journal of Economic Theory, Elsevier, vol. 183(C), pages 698-739.
    3. Kubler, Felix & Selden, Larry & Wei, Xiao, 2020. "Incomplete market demand tests for Kreps-Porteus-Selden preferences," Journal of Economic Theory, Elsevier, vol. 185(C).

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    More about this item

    Keywords

    Financial Economics;

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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