CARESS Working Paper 98-03 Trade Between Rational Agents as a Result of Asymmetric Information

\No Trade" Theorems claim that the mere arrival of new information can not induce trade between rational agents, even in the presence of asymmetric information. We analyze an economy in which the information agents receive is without noise. As long as preferences abide by the Sure Thing Principle, the no-trade result holds. However, under more general preferences, which do not satisfy the Sure Thing Principle, we ̄nd that dynamic consistency is a necessary but might not be a su±cient condition for information not to induce trade, even with noiseless information. We provide su±cient conditions for a No-Trade Theorem and investigate the pattern of trade with and without dynamic consistency of preferences. JEL classi ̄ciation: D50, D81, D82 ¤This work is based on the ̄rst chapter in the author's Ph.D. dissertation written under the supervision of Prof. Menahem Yaari at The Hebrew University of Jerusalem. I would like to thank him for his advice and support. I am grateful to Sergiu Hart and Oscar Volij for very helpful discussions. I bene ̄tted from remarks and discussions on the subject with Luca Anderlini, Robert Aumann, Tomer Blumin, Yossi Feinberg, George Mailath and Asher Wolinsky. I thank Meggie Eisenstaedt for her help in editing this work.