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Belief-consistent Pareto dominance

Author

Listed:
  • Xiangyu Qu

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, WHUT - Wuhan University of Technology)

Abstract

The classic Pareto criterion claims that all voluntary trades, even on the grounds of heterogeneous beliefs, should be encouraged. I argue that a trade without hope for Pareto improvement remains controversial. I introduce and characterize a notion of belief-consistent Pareto dominance to formalize this argument, which, in addition to unanimity of preferences, requires all rankings in a trade to be supported by some common beliefs that must coincide with the agents' beliefs about the events on which all agents agree.

Suggested Citation

  • Xiangyu Qu, 2020. "Belief-consistent Pareto dominance," Post-Print hal-02973212, HAL.
    • Handle: RePEc:hal:journl:hal-02973212
    DOI: 10.1007/s40505-019-00178-0
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    References listed on IDEAS

    as
    1. Markus K. Brunnermeier & Alp Simsek & Wei Xiong, 2014. "A Welfare Criterion For Models With Distorted Beliefs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(4), pages 1753-1797.
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    5. Itzhak Gilboa & Larry Samuelson & David Schmeidler, 2014. "No‐Betting‐Pareto Dominance," Econometrica, Econometric Society, vol. 82(4), pages 1405-1442, July.
    6. Morris, Stephen, 1995. "The Common Prior Assumption in Economic Theory," Economics and Philosophy, Cambridge University Press, vol. 11(2), pages 227-253, October.
    7. David M. Kreps, 2012. "Microeconomic Foundations I: Choice and Competitive Markets," Economics Books, Princeton University Press, edition 1, volume 1, number 9890.
    8. Gabrielle Gayer & Itzhak Gilboa & Larry Samuelson & David Schmeidler, 2014. "Pareto Efficiency with Different Beliefs," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 151-171.
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    More about this item

    Keywords

    Heterogeneous beliefs; Belief consistent; Pareto condition; Speculation;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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