Autori
Phlips, Louis
Harstad, Ronald Morris

Titolo
Futures market contracting when you don't know who the optimists are
Periodico
European University Institute of Badia Fiesolana (Fi). Department of Economics - Working papers
Anno: 1993 - Fascicolo: 3 - Pagina iniziale: 1 - Pagina finale: 42

If traders on futures markets for exhaustible resources rationally update from consistent priors, a prediction of a zero aggregate volume of speculative activity is both inescapable and readily invalidated. We have built models of speculative futures trading based upon inconsistent priors, analyzing games of inconsistent incomplete information. These models have assumed that the inconsistent priors are themselves common knowledge. In this paper, we explore the game-theoretic implications of treating doubly inconsistent incomplete information, in that inconsistent priors are private information, and traders attach inconsistent assessments to the probability that a trader will be an optimist. The result is not arbitrary: the logic of a separating equilibrium can be specified via backwards induction. It is unlikely that subgame-perfect equilibria will exhibit pooling. The volume of speculative trading is reduced by informational constraints, but a sense is specified in which no ex ante agreed-upon Pareto improvements over separating equilibrium behavior can satisfy the information constraints for take-it-orleave-it contracts.



Testo completo: http://hdl.handle.net/1814/444

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