Non-Implementability of Arrow-Debreu Equilibria by Continuous Trading Under Knightian Uncertainty

Noisy Arrow - Debreu Equilibria ∗

I develop a noisy rational expectations equilibrium model with a continuum of states and a full set of options that render the market complete. I show a major difference in equilibrium behavior between models with constant absolute risk aversion (CARA) and non-CARA preferences. First, when informed traders have non-CARA preferences, all equilibria are fully revealing, independent of the amount ...

Implementing Arrow-debreu Equilibria by T Rading Innnitely-lived Securities

Spending Is Not Easier Than Trading: On the Computational Equivalence of Fisher and Arrow-Debreu Equilibria

It is a common belief that computing a market equilibrium in Fisher’s spending model is easier than computing a market equilibrium in Arrow-Debreu’s exchange model. This belief is built on the fact that we have more algorithmic success in Fisher equilibria than ArrowDebreu equilibria. For example, a Fisher equilibrium in a Leontief market can be found in polynomial time, while it is PPAD-hard t...

Intertemporal equilibria with Knightian uncertainty

We study a dynamic and infinite–dimensional model with Knightian uncertainty modeled by incomplete multiple prior preferences. In interior efficient allocations, agents share a common risk–adjusted prior and use the same subjective interest rate. Interior efficient allocations and equilibria coincide with those of economies with subjective expected utility and priors from the agents’ multiple p...

Trading in Experimental Asset Markets under Knightian Uncertainty

Recent theoretical research shows that in asset markets vague state probabilities lead to price volatility, trading inertia, and may worsen risk-sharing efficiency, whereas Subjective Expected Utility theory implies that prices, volumes, and final allocations for risky and uncertain assets should be equivalent. We investigate experimentally whether prices, trading, and final allocations are aff...