
Aggregation of Heterogeneous Beliefs
Napp, Clotilde; Jouini, Elyès (2006), Aggregation of Heterogeneous Beliefs, Journal of Mathematical Economics, 42, 6, p. 752-770. http://dx.doi.org/10.1016/j.jmateco.2006.02.001
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Article accepté pour publication ou publiéDate
2006Journal name
Journal of Mathematical EconomicsVolume
42Number
6Publisher
Elsevier
Pages
752-770
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Show full item recordAbstract (EN)
This paper is a generalization of [Calvet, L., Grandmont, J.-M., Lemaire, I., 2002. Aggregation of heterogenous beliefs and asset pricing in complete financial markets. Working paper] to a dynamic setting. We propose a method to aggregate heterogeneous individual probability beliefs, in dynamic and complete asset markets, into a single consensus probability belief. This consensus probability belief, if commonly shared by all investors, generates the same equilibrium prices as well as the same individual marginal valuation as in the original heterogeneous probability beliefs setting. As in [Calvet, L., Grandmont, J.-M., Lemaire, I., 2002. Aggregation of heterogenous beliefs and asset pricing in complete financial markets. Working paper], the construction stands on a fictitious adjustment of the market portfolio. The adjustment process reflects the aggregation bias due to the diversity of beliefs. In this setting, the construction of a representative agent is shown to be also valid.Subjects / Keywords
Representative agents; Aggregation of belief; Consensus belief; Heterogeneous beliefsRelated items
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