Trade with Heterogeneous Multiple Priors

Abstract

This paper presents a general framework to understand the possibility of a purely speculative trade under asymmetric information, where the decision making rule of each trader conforms to the multiple priors model (Gibloa and Schmeidler, 1989): the agents are interested in the minimum of the conditional expected value of trade where the minimum is taken over the set of posteriors. In this framework, we derive a necessary and sufficient condition on the sets of posteriors, thus implicitly on the updating rules adopted by the agents, for non-existence of trade such that it is always common knowledge that every agent expects a positive gain.