Incomplete information equilibria: Separation theorems and other myths

The incomplete information financial economic equilibrium (IIE) literature has been growing at a growing rate since its inception in the early nineteen eighties. This paper highlights, clarifies, and examines issues and concepts essential to this equilibrium. These include: the number of state variables, irrelevance of separation theorems, unobservable productivity processes that lead to complete information, relative level of variances and deterministic IIE, IIE and incomplete markets, the (im)persistence of heterogeneous beliefs, and the relation of IIE to the model uncertainty/ambiguity approach. Understanding concepts under IIE facilitates understanding these concepts under complete information equilibria, a special case of IIE. JEL codes: E20, E30, D80, D90, G10