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Aggregation of Heterogeneous Beliefs

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Date
2006
Dewey
Economie financière
Sujet
Representative agents; Aggregation of belief; Consensus belief; Heterogeneous beliefs
JEL code
G12; D83
Journal issue
Journal of Mathematical Economics
Volume
42
Number
6
Publication date
09-2006
Article pages
752-770
Publisher
Elsevier
DOI
http://dx.doi.org/10.1016/j.jmateco.2006.02.001
URI
https://basepub.dauphine.fr/handle/123456789/80
Collections
  • DRM : Publications
  • CEREMADE : Publications
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Author
Napp, Clotilde
Jouini, Elyès
Type
Article accepté pour publication ou publié
Abstract (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.

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