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Journal Articles Economics Bulletin Year : 2003

Rate of arbitrage and reconciled beliefs

Abstract

Any group of risk neutral agents who hold differing beliefs is vulnerable to money pumps (arbitrage). Thus, the agents may wish to reconcile their beliefs into a new joint belief. We propose a criterion for the choice of reconciled belief based on the notion of ``rate of arbitrage.'' It is shown that there exists a unique belief (probability distribution) that minimizes the maximal expected rate of arbitrage, and an explicit formula for this belief is given.
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Dates and versions

hal-00539814 , version 1 (25-11-2010)

Identifiers

  • HAL Id : hal-00539814 , version 1

Cite

Marco Scarsini, Yossi Feinberg. Rate of arbitrage and reconciled beliefs. Economics Bulletin, 2003, Vol. 4, N° 11, pp.1-12. ⟨hal-00539814⟩

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